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Income Tax Appellate Tribunal, DELHI BENCH ―C: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 01. This appeal is filed by M/s GIL Maritius Holdings Ltd (Assessee) against the order of The Commissioner Of Income Tax (Appeals) – II , Dehradun ,( The Learned Commissioner Appeals ) dated 1/3/2012 for A.Y. 2006 – 07. The learned Commissioner appeals passed order in appeal filed by the assessee against the order of The Deputy Director Of Income Tax, International Taxation, Dehradun (The Learned AO) passed u/s 143 (3) of The Income Tax Act, 1961 (The Act) on 26/12/2008 assessing income of assessee at ₹ 125040506/– against the declared total income of Rs. Nil.
The brief facts of the case shows that assessee 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 not have a permanent establishment in India and therefore its income is not chargeable to tax in India.
It was further stated by the assessee that it has earned revenue from two contracts and duration of the first contract is 109 days and duration of other contract is 136 days. It was therefore stated that it has not crossed the basic threshold time prescribed as per article 5 of DTAA. It was further submitted that it is an installation and assembly project and has continued for more than 90 days therefore it does not have a permanent establishment in India.
4. The learned assessing officer rejected the contention of the assessee and held that assessee has a ‗vessel‘ at its disposal which constitute a fixed place of business in India in view of article 5 (1) of DTAA through which the business of the assessee is carried on, accordingly it constitutes the permanent establishment in India. Assessee was also asked to submit the copy of the profit and loss account to which assessee expressed its inability stating that as there is no permanent establishment in India, no profit and loss account has been drawn. It was further contended by the assessee that under the domestic law if the transaction is taxable under section 44BB of The Income Tax Act read with section 90 of The Income Tax Act the computation may be made in accordance with that. The learned assessing officer also rejected the same holding that as assessee has a permanent establishment in India and has filed the return of income under the provisions of DTAA but has not furnished the profit and loss account, he estimated the profits of the assessee at 25% of the total revenue of ₹ 50,01,62,027/–. Accordingly the income of the assessee was assessed at ₹ 12,50,00,506/– as per order passed under section 143 (3) of The Income Tax Act 1961 on 26/12/2008.
5. Assessee aggrieved with the order of the learned assessing officer preferred appeal before the learned Commissioner of Income Tax Appeals who held that the shortcomings in the order of the learned assessing officer are overcome by conducting the inquiries at the appellate stage. He further held that determination of the permanent establishment is not merely a metaphysical construct not having any basis in reality. He held that as the assessee is involved in the project dealing with transportation of mineral oils there would be a strong 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 article 5 (2) (g) considering that clause (g) is more specifically connected with the oil and gas industry. He further held that in both the cases the requirement of 9 months duration would not be there to potentially bring to tax revenue as business income. He confirmed action of the learned assessing officer. He further held that the decision relied upon by the learned authorized representative before him in the case of the assessee is not applicable and is distinguishable as the coordinate bench did not go into the issue of the nature of the permanent establishment as per the double taxation avoidance agreement. Attribution of the profit at the rate of 25% of the gross receipt, he also upheld , as appellant did not file audited accounts which could have given an idea about the surpluses available for taxation.
6. The assessee aggrieved with the order of the learned Commissioner of appeal has preferred appeal before us.
The learned authorized representative adverting to the facts stated that assessee has entered into two contracts. He submitted that the first contract is with the Hyundai, which is placed at page number 1 – 50 of the paper book where the vessel entered India on 1/2/2005 and contract was completed on 20/5/2005. He further referred to the second contract dated 15/9/2004 and stated that for that contract vessel entered into India on 1/12/2004 and contract was completed on 15/4/2005. He therefore submitted that both the contracts are for these durations only undisputedly. He therefore stated that construction and assembly work of laying pipeline was taken into India and both the contracts are for less than 9 months. Hence, there is no permanent establishment of assessee in India. He referred to the double taxation avoidance agreement have and stated that both the contracts are for less than 9 months therefore there is no permanent establishment. He further submitted that the learned assessing officer has held that assessee has a permanent establishment as per article 5 ( 1) whereas the learned Commissioner of income tax has held that assessee has permanent establishment according to article 5 (1) and article 5 (2) (G) of the double taxation avoidance agreement. He further submitted that though the issue is squarely decided in favour of the assessee in ITA number 5686/del/2010 for assessment year 2007 – 08 in assessee‘s own case, the learned 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 assessee does not have a permanent establishment according to article 5(2)(g) of the double taxation avoidance agreement. With respect to the number of days of each contracts, he once again reiterated that the certificate of the contract completions are available at page number 51 and page number 90 of the paper book. He further referred to page number 138 – 139 of the paper book which is the remand report submitted by the assessing officer before Commissioner appeals wherein it has been stated by the assessee that presence of the assessee is from 12/11/2003 and therefore the duration/ period was doubted. On this he referred that the learned assessing officer has taken all together different contract which is not relevant for determining PE in this case. He further reiterated that only two contracts are in dispute and both of them have been placed before the learned assessing officer. He further referred both the contracts at page number 41 – 47 and page number 75 to show the scope of work and stated that the contract referred to by the learned assessing officer is altogether a different contract. In the end, he submitted that as there is no permanent establishment the income of the assessee is required to be assessed under section 44BB of the act. He submitted that benefit of section 44 BB is allowable to the assessee in case of production also. He further referred to the decision of Kreuz Subsea pte Ltd V DDIT 58 Taxmann.com 371 [Mum] to state that even if the date of signing of the contract is taken as the date of commencement of the work even then it does not exceed the threshold of 9 months. He submitted that the commencement of the contract from the date of the signing of the contract has been specifically rejected by the coordinate bench in that case.
The learned CIT departmental representative vehemently supported the order of lower authorities. With respect to the time span of the contract, he referred to para number 4 of the assessment order and also referred to page number 5 to 4 of the paper book wherein it has been stated that the subcontract has been entered into with effect from 15/09/2004. He further referred to page number 59 of the paper book wherein the contract was stated to have commenced with effect from ‗award of the subcontract‘ and shall prosecute said sub contract work to completion. Therefore, he submitted that the contract 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 where the assessee has specifically stated that no information is available with it. The assessee itself has stated that employees who had managed the concerned projects have left employment with the assessee and assessee is facing genuine difficulties in collecting the requested information/documents. Therefore it is apparent that when assessee itself is not producing the relevant details before the assessing officer there is no onus on the assessing officer to prove that the income is chargeable to tax in India in accordance with the domestic tax laws as well as per the double taxation avoidance agreement. He stated that the onus is on the assessing officer to prove the permanent establishment existence only when the assessee submits the complete data/ details to the assessing officer. He further referred to completion certificate submitted by the assessee at page number 51 and 90 of the paper book and submitted that in both the certificates there is no date on which they have been issued. He further referred to page number 60 of the paper book which is a copy of the contract wherein as per clause number 5.5, it was specifically mentioned that certificate in respect of that is to be given to show that the work has been properly undertaken and completed. He submitted that on this date, the work has been completed but certificate has not been given before the assessing officer. He further referred to page number 60 of the agreement wherein at para number 5.6, it was stated that upon expiry of subcontractors guarantee obligation as set out in article 2.4, thereof contractor shall issue a final completion certificate releasing subcontractor from its guarantee obligation under the subcontract is submitted, this information is also not provided by the assessee to the assessing officer. He further referred to page number 29 of the paper book where in para number 23 completion of the subcontractor work was mentioned in full he submitted that there is no such compliance shown by the assessee before the assessing officer. He further referred to page number 86 of the paper book which is subcontract work schedule, there is no such a contract record work schedule available or attached in the paper book which itself shows that assessee is unable to show when the work was completed by the assessee. He therefore submitted that for all these reasons, it is not possible for 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 in absence of details , the learned assessing officer cannot conduct any enquiry or examine those details and therefore the assessing officer cannot be put with undue burden. Had it been the case of the assessee that assessee has submitted the complete details before the assessing officer and then only onus lies on the assessing officer. He submitted that in absence of any details submitted by the assessee before the lower authorities, the onus does not shift on the assessing officer for showing that there exist a permanent establishment or not. The AO is duty- bound to presume in absence of adequate information, as it is not forthcoming, and inference can be drawn where the inconsistencies in the detail is found. With respect to the applicability of section 44BB of the act, he submitted that the decision of the Hon‘ble Supreme Court has stated that there has to be a direct connection of those contracts and then only that provision applies. He submitted that there has to be proximate connectivity/ linkage with oil exploration contracts to fall u/s 44BB of the act. The assessee has failed to show the same and therefore the provisions of section 44BB of the act do not apply. On the issue of attribution of profit, he submitted that when the assessee has failed to prove/ provide any information about the profitability of the contract work, the learned assessing officer has most reasonably attributed 25% of the income of the gross receipt as income of the assessee attributable to its permanent establishment. In absence of such details, no fault can be found with the assessing officer.
In rejoinder the learned authorized representative submitted that in assessment proceedings whatever details have been asked by the assessing officer were provided, therefore, now it cannot be said that assessee has failed to provide any information to the assessing officer. In remand proceedings was taken up after the 6 years and therefore the details were not available due to lapse of considerable time. He submitted that if the details are not available after 6 years, where the assessee is also not obliged to maintain them for that long time, there is no reason to put the blame on the assessee for non-provision of such details. With respect to the completion date of the contracts, it was submitted that assessee has submitted whatever information was available with it. If the 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.
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 contract was entered into on 01/11/2004. The assessee has submitted that this contract commenced from the date the vessel entered into India i.e. 1/2/2005. For the purpose of the completion, certificate issued by Hyundai heavy industries Co Ltd has been relied upon which is placed at page number 51 of the paper book which reads as under:- “HHI hereby confirms that all jobs associated with Mumbai high Uran Trunkline project
Ref. HHI/GIL/MUT/004 dated November 2004 was been satisfactory completed by GIL Mauritius Holdings Ltd as on may 2005 and the equipment and the personnel have been demobilised from the project thereafter.” Based on the above certificate it was claimed by the assessee that the project work was completed on 20/05/2005. On careful reading of the contract, condition of the subcontract has been placed at page number 4, where the tables of contents are mentioned. At page number 14 in para number 10.0 of the contract the details of commencement and execution of the contract is mentioned. According to that subcontractor shall commence the subcontract work on the effective date or such other date as may be mutually agreed between the parties. The assessee could not show us that what is the ‗effective date‘ agreed by the parties. Therefore the commencement date of the contract remains unascertained and merely because the vessel entered into India on a particular day, that date cannot be taken as a commencement date. The reason being that the scope of the work of the main contract and coupled with the scope of subcontractor placed at page number 41 onwards of the paper book, the scope of the work does not commence with the date of entry of vessel in to India. According to appendix – 1, the project management and engineering inclusive of reporting and necessary documentation and procedures are required to be carried on by the assessee. According to that subcontractor was required to establish a dedicated project team headed by subcontractor‘s project manager for the proper execution of the subcontractor work. Key personnel shall also be dedicated on a full-time basis for the work. There are certain kick off meeting also listed therein, mobilization is also for the purpose of all required personnel, equipment materials tools et cetera.
Further the demobilization is with respect to the removal of all the parts of the construction equipment which 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 documentation is also produced by the assessee to show the compliance with the completion date as mentioned in article 23 of the agreement. As the assessee has failed to demonstrate that, which is the ‗effective date‘ on the commencement of the work and which is the completion date of the work in terms of the contracts entered into by the assessee. Further also the assessee has repeatedly stated that now that detail is not available with the assessee. Even in the remand proceedings such details are not available. In view of this, we do not have any other alternative but to take the 1st November 2004 as the effective date for the commencement of the work and we take the date of 20/5/2005 as the date of the completion of the work as neither the assessee nor the revenue has disputed this date. There was also no evidence available with the assessing officer that even after this date the work has continued. Instead of that assessee has given a certificate that the work got completed with respect to all aspects of the contract in the May 2005. Further the date of demobilization of the vessel is also 20/5/2005. In view of this we are of the opinion that the contract work continued in India with effect from 01/11/2004 to 20/05/2005. In view of this, it is apparent that this work was carried out by the assessee in India for 201 days.
With respect to the 2nd contract which has been entered into by assessee with the VMGL – VML consortium for installation of riser/I- tube clamps and crossings in connection with MHN&H pipeline project at Bombay high and Neelam and Heera Fields undertaken by the ONGC. Such contract was entered into on 15/9/2004. It is claimed that vessel entered into India on 1/12/2004 and contract was completed on 15/4/2005. On examination of the contract, it is mentioned at page number 59 of the paper book, where the copy of the contract is placed, and in para number 5.1 it has been stated that subcontractor shall commence the subcontractor work upon award of this subcontract and shall prosecute subcontract works to completion in a prompt and diligent manner in accordance with the subcontract‘s works schedules contained with appendix 3 thereof. With respect to the completion of the contract, para number 5.6 of the agreement states that when each unit or face of the subcontract work has been fully completed in accordance with the scope of subcontractor 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 has also similar mobilization and demobilization clauses. The schedule of price and payments listed at appendix 2 of the agreement also speaks about the project management, procurement, and mobilization. Further addendum to appendix – 1 was also entered into by the assessee with the main contractor, which shows that assessee is required to maintain the subcontract work program and schedule, which are the basic documents, required to show that when the project commenced and when it ended. Admittedly, these details are not submitted by the assessee before the lower authorities. Further, the contract says that the commencement shall be from the date the agreement is signed. In view of this and for the reasons given while deciding such dates for the 1st contract, we also take that the commencement of the work has started with effect from 15/09/2004. Further, similarly the assessee has submitted a certificate which is placed at page number 90 of the paper book, which states that contract number 010/2004/MHN and at dated 15/09/2004 commenced with effect from 15/09/2004 for installation of riser clamps etc in Mumbai Highfield have been satisfactory completed by the assessee as on 15/04/2005 and the equipment and the personnel have been demobilized from the project thereafter. In view of this, it is apparent that the commencement date of this agreement is from 15/09/2004 and the completion date is 15/04/2005. Neither the assessee nor the revenue could produce anything contrary to this to show that these are not the dates of the commencement and completion of this contract. Therefore, it is apparent that works commenced for this contract on 15/9/2004 and completed on 15/4/2005 carried out in India for approximately 212 days.
It is undisputed that assessee has a fixed place of business in India as there were personnel as well as the vessel situated in India through which the business of the assessee is carried on. This fact has not been disputed by the assessee before us or before the assessing officer that it does not have any permanent establishment in India. The only argument of the assessee is that it is a Mauritius resident and therefore it is entitled for the benefit of the double taxation avoidance agreement with Mauritius and as the permanent establishment has not crossed the threshold time limit the income from such activities is chargeable to tax only 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 employees or other personnel engaged by the enterprise for such purpose, but only where activities of that nature continue (for the same or connected project) for a period or periods aggregating more than 90 days within any 12 month period.] 3. Notwithstanding the preceding provisions of this article, the term "permanent establishment" shall be deemed not to include : (a) the use of facilities solely for the purpose of storage or display of merchandise belonging to the enterprise ; (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display ; (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise ; (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or for collecting information for the enterprise ; (e) the maintenance of a fixed place of business solely— (i) for the purpose of advertising, (ii) for the supply of information, (iii) for scientific research, or (iv) for similar activities, which have a preparatory or auxiliary character for the enterprise.
Notwithstanding the provisions of paragraphs (1) and (2) of this article, a person acting in a Contracting State for or on behalf of an enterprise of the other Contracting State [other than an agent of an independent status to whom the provisions of paragraph (5) apply] shall be deemed to be a permanent establishment of that enterprise in the first-mentioned State if : (i) he has and habitually exercises in that first- mentioned State, an authority to conclude contracts in the name of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise ; or (ii) he habitually maintains in that first-mentioned State a stock of goods or merchandise belonging to the enterprise from which he regularly fulfils orders on behalf of the enterprise.
An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, where such persons are 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.
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.
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.
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 clause (a) to (i) of article 5 (2) of DTAA but falls under clause (g) as that clause is more specifically connected with oil and gas industry. He further held that in that article duration of 9 months is not applicable. 15. Objecting to the above proposition the ld AR relied up on the decision of the coordinate bench in DDIT V Clough Projects international Ltd [ and submitted that in that case assessee was not found the owner of the oil well , therefore considering the Indo Australian DTAA , article 5 (2) (f) , there cannot be any PE . His contention is that as in the present case also the assessee is not owner of the oil well, this article [article 5 (2) (f)] cannot be applied. We have carefully perused that decision. In that case the assessee was providing services to oil and gas companies and issue before the coordinate bench was whether assessee had no PE in India by relying upon Article 5(2)(j) and (k) of the DTAA between India and Australia without properly appreciating the fact and the provisions of the Treaty that the case of the assessee was covered by Article 5(2)(f) of the Treaty which provides that mere existence of an ‗oil and gas well‘ constitute Permanent Establishment (PE) and it is not necessary to use the same for extraction by the assessee. In that case the coordinate bench was presented with the decision of AAR ruling in P. No. 11 of 1995 (228 ITR) (AAR) = (2002-TII-47-ARA- INTL) wherein installation or pipeline and submarine cable sea-bed in Bombay High Sea are claimed to have been covered by oil and gas well under Article 5(2)(f) of DTAA, whereas the AAR held that the argument of department cannot be accepted because the applicant has only worked on the oil or gas well and the oil well in question was not owned or operated by the applicant. Therefore it is incorrect to say that it has ben held that for determining PE the assessee should be owner of the oil or gas well. The only requirement is that it should be a fixed place available to the assessee through which it carries on its business. The argument of the ld AR also deserves to be rejected on the ground that in article 5 (2) various places have been mentioned and there is no conditions attached to it that they should be owned by the assessee. The only condition is that the business of the assessee should be carried on through that places. The Honourable supreme court in 2017-TII-17-SC- 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 Canadian company. For the purposes of the training contract, the taxpayer was given various offices at the premises of the Canadian company, which he was only allowed to enter at normal office hours. He was allowed to use the client's telephone only on client's business. He spent 300 days in one tax year and 40 in the subsequent year at the premises. The Tax Court of Canada and the Federal Court of Appeal confirmed that he had no fixed base – which was treated as having the same meaning as PE – at the premises since he had no right to use the premises as the base for the operation of his own business. (ii) In a case generally referred to as Hotel Manager (Bundersfinanzhof, February 3, 1993, IR 80-81/91, IStR 1993, p. 226, (1993) BStBl., II, 462.) the Bundesfinanzhof held that a UK hotel management company had a PE in Germany when it entered into a 20 year contract with a limited partnership which owned a hotel. The agreement required the UK company to supply a general manager: the general manager's office constituted the PE (and not the entire hotel) since the UK company had a secured right to use this office for the purposes of the agreement. (iii) A Swiss company was held not to have a PE when it contracted with a German company to produce salad dressings in the name of and in accordance with the recipe of the Swiss company. No employees of the Swiss company were present at the production facility to supervise production (Decision of the Lower Tax Court of Baden-Wurttemberg, May 11, 1992, decision No. 3K 309/91, RIW 1993, 81, IStR 1992, p. 104) . The Bundestinanzhof has also held that a scene painter who was commissioned to carry out a work in France for six weeks, and given special rooms for the purpose, did not have a fixed base at those premises. (iv) The Administrative Court of Appeal of Paris has held that a German travel agency did not have a PE in France (Decision of November 10, 1998, (199) Revue de Droit Fiscal, No. 25, comm.. 503, reported with translation in (1998) 1 ITLR 857). A travel agency in Paris had made an office available to the German company from time to time, and the manager of the German company had a flat in Paris; the Court held that the German company had no PE at its disposal in France. (v) The Brussels Court of Appeal has held that a German resident engaged in the transportation of vehicles 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.
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 deciding the issue of taxability of receipts u/s 44BB of the act, the ld CIT (A) has held that the activities of the assessee are post mining and processes involving already mined products. Further while holding that assessee has a PE under article 5 (2) (f) of the DTAA, the ld CIT (A) has not at all examined that whether oil well or gas was the fixed place available to the assessee for carrying on its business. Without first giving that finding, the d CIT (A) has incorrectly assumed that assessee has a PE under that article. That oil well should have been proved that it is under the disposal of the assessee 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. Here it is apparent that assessee even if has the above place it is for the purposes of the above project undertaken as subs contractor. Even otherwise the ld CIT (A) has not given any finding that such oil well is at the disposal of the assessee. We rest at that and state that unless that is proved first by revenue, the income cannot be charged under that article. Accordingly, we allow ground no 2 of the appeal of the assessee.
Ground no 1 of the appelai sgeneral in nature. Ground no 3 is an alrnative ground to state that receipt of the income should be considered u/s 44BB of the act. Ground no 4 is against the attribution of income. As we have already decided the ground no 2 in favour of the assessee, all other grounds of appeal
are infructous and hence dismissed. 18. Accordingly, appeal of the assessee is partly allowed. Order is pronounced in open court on 20/10/2018.