2013 (2) TMI 457 - HC - Income Tax

DTAA agreement with Netherlands Permanent Establishment Whether PE exist in india, when contract period is for less than 6 months dredging back filing works - It was claimed that in view of clause (3) of article 5 of the treaty, a building site or construction, installation or assembly project constituted a permanent establishment only where such project conti-nue for a period of more than six months Held that - Entire duration of the contract was from December 27,1993, till June 26, 1994, i.e., less than six months - Article 5(3) of the treaty provided that in order to constitute a permanent establishment such site or project should continue for a period of more than six months. Such site or project, is provided under article 5(2) of the treaty. Since contract was for less than six months, it becomes absolutely clear that the assessee did not have a permanent establishment in India as per article 5(3) of the treaty - Article 5(3) provides a specific provision which covers the provision of article 5(2) of the treaty Specific provision would prevail over the general provision - No permanent establishment was constituted by the assessee in India during the assessment year in question - No part of the Revenue earned by the assessee was taxable in India In favour of assessee.

Summary

Issues:
Assessment of permanent establishment under the Double Taxation Avoidance Agreement between India and Netherlands for the assessment year 1994-95.

Analysis:

1. The appellant, a partnership firm, entered into a sub-contract for dredging and back filling works with another entity during the assessment year 1994-95, claiming nil income as it believed its revenue was not taxable in India due to the absence of a permanent establishment as defined under the treaty between India and Netherlands.

2. The assessment proceedings were reopened based on the assessment year 1995-96, where it was concluded that the appellant had a permanent establishment in India, leading to taxation. However, the Commissioner of Income-tax (Appeals) and the Tribunal found that no permanent establishment existed for the assessment year 1994-95, as the contract duration was less than six months, in compliance with the treaty's provisions.

3. The Revenue appealed the decision, arguing that the Tribunal erred in not considering the provision of article 5(2) of the treaty, which includes an office as a permanent establishment, and focusing solely on article 5(3) regarding project duration. The court, however, upheld the previous findings, emphasizing that the specific provision of article 5(3) prevails over the general provision of article 5(2).

4. The court determined that the appellant did not have a permanent establishment in India during the assessment year 1994-95, as confirmed by the Tribunal's decision in the appellant's case for the assessment year 1995-96. Consequently, no part of the appellant's revenue was taxable in India, and the appeal was dismissed with no costs awarded.

5. The judgment clarified the interpretation of the treaty's provisions regarding permanent establishment and highlighted the significance of specific provisions prevailing over general ones. The decision emphasized the factual findings regarding the contract duration and reaffirmed the absence of a permanent establishment for the appellant in India during the relevant assessment year.