ADIT(IT),3(1),KOLKATA, KOLKATA vs. VAN OORD ATLANTA B. V., GOA

सुनवाई क� तार�ख / Date of Hearing : 23/08/2018 घोषणा क� तार�ख/Date of Pronouncement: 20/11/2018 आदेश / O R D E R

Per Dr. Arjun Lal Saini, AM:

“1. Whether on the facts and in the circumstances of the case, Ld CIT(A) was justified in holding that there was no 'Permanent Establishment' (PE) of the appellant in India and the contractual receipts are not chargeable to tax in India? 2. Whether on the facts and in the circumstances of the case, Ld.CIT(A) was justified in taking a view that in appellant's case there was no PE in existence once the dredger left India? 3. Whether it can be said that Article 5(3) of the DTAA between India and Netherlands covers the activity of 'dredging' within its ambit when it speaks specifically of a project of the nature of building site of construction, installation or assemble project and whether consequently the limit of six months apply in this case? 4. Whether on the facts and in the circumstances of the case, Ld CIT(A) was justified in holding that no income is chargeable to tax in India in spite of the fact that the appellant voluntarily offered its income to tax by filling returns of income?

2 Van Oord Atlanta B.V.

5. Whether the appellant can be provided relief by Ld. CIT(A) in spite of it having failed to avail the ways and means available within the provisions of the Income Tax Act, 1961, to make a claim regarding non- taxability of its income in India? 6. Without prejudice to above whether the appellant's ground denying the liability to tax admitted by the Ld. ClT(A) arose from the fact on record in the assessment proceedings?[National Thermal Power Corporation Vs. CIT 229 ITR 383,387 (SC) 7. Whether the Ld. ClT(A) was correct in law in holding that the recovery of bad debts of Rs.6,58,91,070/- by the appellant in A.Y.2003-04 was not chargeable to tax as the provisions of section 41(4) of IT Act do not get attracted in the case of the appellant despite the fact that the appellant had itself offered the said amount for taxation u/s.41(4) of the l.T. Act 1961 in the said assessment year. 8. Whether on the facts and in the circumstances of the case, Ld CIT(A) was correct in condoning the delay in filing of appeal by the appellant by more than 2 years and 7 months? Had the appellant provided satisfactory explanation on the basis of which the Ld CIT(A) condoned the delay in filing the appeal?”

“It was stated by the ld. Counsel of the appellant that it has been noted by ITAT in appellant’s own case for Assessment Years 2000-01 and 2001-02 that the appellant did not have PE in India and its income was not liable to tax in India and it was not required to file tax returns in India. Article 265 of the Constitution of India provides that no tax shall be levied or collected except by the authority of 3 Van Oord Atlanta B.V. law. Non-admission of the appellant’s appeal on technical ground would result in collection of tax which is not payable by the appellant in law. Since the appellant’s income is not liable to tax in India merely because returns of income were filed declaring income under mistaken impression of law would not, ipso facto fasten the liability to tax on the appellant which is not otherwise present in law.

In view of the aforesaid, the ld. Counsel prayed that the delay in filing the aforesaid appeal be condoned in terms of the powers conferred upon me in terms of section 249(3) of the Act and the appeal be admitted and adjudicated on merits. I have considered the submissions of the appellant. Having regard to the sequence of events as narrated by the ld. Counsel hereinabove and the decisions of the Supreme Court relied upon by the appellant, I am of the view that the appellant had sufficient cause for the delay in filing the above appeal and the delay needs to be condoned in the interest of justice. Considering that on the facts of the case and the provisions of the Indo-Netherlands Double tax Treaty, the appellant was not liable to tax in India, as held by me while dealing with the appellant’s grounds of appeal hereinafter, the Assessing Officer, who had all the facts before him, should have considered the return as non-est and should not have brought the income returned by the appellant to tax in absence of PE of the appellant in India. The Assessing Officer was duly bound to apprise the appellant of the correct legal position even through the appellant had filed return under the mistaken impression of law. I refer to the Tribunal’s decision in appellant’s own case for Assessment Years 2000-01 and 2001-02, in this regard. The appellant, therefore, could have entertained a bona fide belief, on being apprised of the correct legal position regarding non-existence of PE, that the order of the Assessing Officer holding the appellant to be liable to tax in India, in spite of there being evidence on record to demonstrate that the appellant did not have a PE in India, constituted mistake apparent from record which was rectifiable under section 154 of the Act and consequently the said issue could be raised in appeal against such order and a separate appeal against the assessment order was not required. The A.O has not brought anything on record that the appellant has PE in India in other-words as per his assessment order he has indirectly admitted that the appellant had no PE in India. The delay in filing the appeal against the order u/s 143(3) of the Act, in the circumstances mentioned hereinabove, therefore, is neither willful nor unreasonable and the appellant was prevented by sufficient cause in filing the appeal against order u/s 143(3) of the Act. Further, since the appellant is not taxable in India in absence of a PE in India, refusal to condone the delay on technical grounds would result in collecting tax without authority of law and having regard to the above decisions of the SC, the same would not be in the interest of justice.

4 Van Oord Atlanta B.V. Thus, in exercise of the powers conferred upon the u/s 249(3) of the Act and in the interest of justice, the delay in filing the appeal is, thus, condoned and accordingly the grounds of appeal are admitted for adjudication on merits. Now coming to the merits of the case, the grounds of appeal raised by appellant are decided as below- As regards the ground of appeal no.1, the same being general in nature does not require separate discussion/adjudication. In respect of the ground of appeal no.2, it was contended by the ld. Counsel that the appellant had executed a dredging contract at Haldia Port, for Calcutta Port Trust (CPT). Since the appellant carried out the aforesaid dredging work in India for a period of 153 days (26.02.1999 to 28.07.1999), no permanent establishment of the appellant was formed in India, in terms of Article 5(3) of the Double Tax Avoidance Agreement (DTAA) between India and Netherlands, which provides that a building site or construction/installation or assembly project constitutes PE only where such site or project continues for a period of more than six months. Further, the ld. Counsel mentioned that, since the appellant did not receive the contract amount from CPT the appellant wrote off a sum of Rs.25.76 crores as bad debt in Assessment Year 2001-02. The bad debt to the time of Rs.6,58,91,070/-, which was recovered during the relevant previous year and was offered to tax by the appellant in the return of income for the Assessment Year 2003-04. The ld. Counsel contended that the Assessing Officer ought to have held that recovery of bad debts made during the relevant previous year could not be taxed in the hands of the appellant because the appellant did not have a ‘permanent establishment’ in India during the initial year or any other subsequent year. In this connection, I find that the issue regarding ‘permanent establishment’ was raised by the appellant before the Tribunal in appeals for Assessment Years 2000-01 & 2001-02, and the Tribunal has considered the issue in detail and decided the appeals in favour of the appellant vide order dated 24.08.2007, observing as under:- “9 As regards the merits of the case, we find sufficient force in the arguments of the ld. Counsel for the appellant. The basic ingredients of a permanent establishments, as indicated in Article 5 of the DTAA, are (i) a fixed place of business and (ii) carrying on of a business from that fixed place. From the facts available on record, it transpires that the appellant did not have any fixed place of business after 28.07.99, when the dredger left the Haldia Port. After the dredger left the port there was no activity which could be termed as ‘business carried on’ from the ‘fixed place of business’. Maintenance of books of account or bank a/c cannot be a factor for determining fixed place of business as permanent establishment. At best, these can be termed as activities of auxiliary character, which have been specially exempted from the definition of PE in Clause 4(e) of Article

5. The appellant’s project office was in operation from 26.02.99 to 28.07.99 i.e. for 5 Van Oord Atlanta B.V. 153 days only, which is much less than the period required for an establishment to be termed as ‘permanent establishment. Therefore, there was no valid reason for treating the project office of the appellant as a permanent establishment. We are, therefore, of the view that the appellant company did not have any permanent establishment in India during the relevant F.Y as defined in Article 5 of the DTAA between India and Netherlands. The income earned by the appellant during its stay of 153 days in India cannot therefore, be held as taxable in India.”

As regards the taxability of bad debts recovered in the subsequent years, the Tribunal held in the aforesaid order that the recovery of bad debts would not be taxable in India, observing as under: “13.1 As is evident from the assessment order, a sum of Rs.24,11,98,673/-, was recovered/credited in the books of accounts on the basis of appellant’s letter dated 30.10.2002, as against which the appellant offered only Rs.22,97,77,487 in Assessment Year 2001-02. The difference of Rs.1,14,21,186/- was, therefore, added to the total income of the appellant for Assessment Year 2001-02. The ld. CIT(A) deleted the addition with the following observations:- I have considered the submission and facts of the case. The contention of the appellant that entire amount has been offered for taxation in three years is found correct. This is merely matter of taxing the particular income in the year under consideration or in subsequent year. The income has been offered in subsequent two years on recovery basis and it is tax accordingly. Thus, addition of Rs.1,41,21,186/- is not called for and same is deleted. As regards to the appellant’s claim of not having PE in India it may be mentioned that the Division Bench of the ITAT Mumbai in the case of Van Oord Dredging and Marine Contractor B.V has held that foreign firms are liable to pay tax even they do not have PE when they actually received the money. Hence this plea is not sustainable.” The appellant contended that the ld. CIT(A) ought to have held that recovery of bad debts made during the previous year could not be taxed in the hands of the appellant because the appellant did not have a ‘permanent establishment’ in India during the initial year or any other subsequent year ................................................................ “In view of the above, the question of treating the recoveries in three years as indicated by the ld. CIT(A) as income chargeable to tax in India does not arise. We therefore hold that the impugned recoveries of bad debt do not form part of income chargeable to tax in India and accordingly direct the Assessing Officer to vacate assessment.” In view of the above, I find that the issue has been discussed in detail in aforesaid order of the Hon’ble Bench of Tribunal wherein the Tribunal has very categorically held that since the appellant has no permanent establishment in 6 Van Oord Atlanta B.V. India, it was not liable to tax in India in respect of the bad debts recovered in three years. The three years referred to by the Tribunal in fact covers Assessment Year 2003-04, too, since the bad debts were recovered between the financial years 2000-01 and 2002-03. Thus, the ITAT in fact, recorded a finding in relation to the assessment of bad debts required by the appellant during the Assessment Year 2003-04, too. In view of the aforesaid, I have no hesitation in holding that the appellant is not liable to tax in India as it had no PE in India during the relevant Assessment Year, as defined in Article 5 of the DTAA between India and Netherlands. Since, the appellant is not liable to tax in India, I do not find any reason for sustaining the addition made by the Assessing Officer in respect of the sum of Rs.6.59 crores received by the appellant towards bad debt written off in the Assessment Year 2000-01. The aforesaid addition is, therefore, deleted and this ground of appeal of the appellant succeeds. In respect of ground of appeal No.3 it was contended by the ld. Counsel that without prejudice to the fact that appellant is not liable to tax in India in absence of PE in India, the amount of Rs.6.59 crores being the amount of bad debt written off in the earlier years and recovered during the previous year 2002-03, has been wrongly brought to tax by the Assessing Officer by invoking the provisions of section 41(4) of the Act. It was further contended that the since the return filed for the Assessment Year 2000-01 was a non-est return, the amount of bad debt written off in that Assessment Year cannot be said to have been allowed deduction. Consequently, the recovery thereof cannot be brought to tax during the relevant Assessment Year in terms of the provisions of section 41(4) of the Act. Though I have held that the appellant has not PE in India and is not liable to tax during the relevant Assessment Year, it may not be necessary to deal with the alternative contention of the appellant. However, the alternate contention of the appellant is dealt with, in case the higher forum was to reverse my order regarding the main contention of the appellant relating to non-existence of PE in India. I find that the Tribunal in the appellant’s case for Assessment Years 2000-01 and 2001-02 has held that the returns for those years are to be treated as non-est as the appellant was, in absence of PE, not liable to tax in India and the Assessing Officer should not have proceeded with such return. In view of the above finding of the ITAT, as there was no PE, there could not as a corollary be any computation of income of PE for Assessment Year 2000-01, being the year of write off. Consequently, the return filed and assessment framed by the Assessing Officer for that Assessment Year is of no consequence and has not sanctity in the eyes of law. Therefore, the question of claiming any deduction for the bad debts written off by the appellant and its allowability by the Revenue does not arise at all. The bad debts recovered in the Assessment Year 2003-04 cannot be taxed in the said year since the bad debts written off in the earlier year were not allowed as deduction and accordingly the provisions of section 41(4) do not get attracted, which specifically state that any amounts subsequently recovered in respect of the bad debt which had been allowed as deduction shall

7 Van Oord Atlanta B.V. be taxed. Thus, there is merit in appellant’s alternate contention, too, that it was not liable to tax in relation to the amount of bad debt recovered for the above stated reason. This ground of appeal is thus decided in favour of the appellant.

6. As the issue is squarely covered in favour of the assessee by the decision of the coordinate bench, in assessee`s own case and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings and the ld CIT(A) has allowed the appeal of the assessee by following the decision of Tribunal in assessee`s own case for A.Y.2000-01 &2001-02, order dated 24.08.2007. We find no reason to interfere in the said order of the ld CIT(A) and the same is hereby upheld. Therefore, these grounds Nos.1 to 8 of appeal of Revenue are dismissed.