2018 (11) TMI 200 - AT - Income Tax

P.E. in India - fixed place of business in India - India-Mauritius DTAA - assessee as acting as a sub contractor with HHI and valentine Consortium for certain specialized job on ONGC Mumbai Uran terminal water projects - attribution of income - Held that - The assessee was acting as a sub contractor with HHI and valentine Consortium for certain specialized job on ONGC Mumbai Uran terminal water projects. CIT (A) has held that work of the assessee is of transporting the already mined product to the uban plant for further processing. While deciding the issue of taxability of receipts u/s 44BB of the act, 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 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 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. - decided in favour of assessee.

Summary

Issues Involved:

1. Determination of Permanent Establishment (PE) under Article 5 of the DTAA between India and Mauritius.
2. Attribution of income to the PE.
3. Applicability of Section 44BB of the Income Tax Act, 1961.
4. Validity of the assessment order passed under Section 143(3).

Detailed Analysis:

1. Determination of Permanent Establishment (PE) under Article 5 of the DTAA between India and Mauritius:

The primary issue in this case was whether the assessee, a Mauritius-based company, had a Permanent Establishment (PE) in India under Article 5 of the DTAA between India and Mauritius. The assessee argued that it did not have a PE in India as its contracts for services related to oil extraction were for durations less than the threshold of 9 months stipulated in Article 5(2)(i) of the DTAA. The contracts in question were for 109 and 136 days respectively, which were both less than 9 months.

The Assessing Officer (AO) rejected this contention, stating that the assessee had a vessel at its disposal in India, constituting a fixed place of business under Article 5(1) of the DTAA, thereby forming a PE. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, asserting that the assessee's activities fell under Article 5(2)(g) of the DTAA, which pertains to oil and gas wells and does not have a 9-month duration requirement.

The Tribunal, however, noted that the CIT(A) did not provide evidence that the oil well was at the disposal of the assessee for its business purposes. The Tribunal emphasized that for a PE to exist under Article 5(2)(g), the place of business must be at the disposal of the enterprise. Since the CIT(A) failed to establish this, the Tribunal concluded that the assessee did not have a PE under Article 5(2)(g).

2. Attribution of Income to the PE:

The AO attributed 25% of the total revenue as the income of the assessee, based on the presumption of a PE in India. The CIT(A) upheld this attribution due to the lack of audited accounts provided by the assessee.

However, since the Tribunal determined that the assessee did not have a PE in India, the attribution of income to a non-existent PE was deemed irrelevant. Therefore, the Tribunal did not uphold the attribution of 25% of the revenue as income.

3. Applicability of Section 44BB of the Income Tax Act, 1961:

The assessee argued that even if its income was taxable in India, it should be assessed under Section 44BB of the Income Tax Act, which deals with the taxation of income from the business of providing services or facilities in connection with the extraction or production of mineral oils.

The CIT(A) rejected this claim, stating that the assessee's activities were post-mining and involved already mined products, thus not qualifying under Section 44BB.

The Tribunal did not delve into this issue in detail, as the primary ground regarding the existence of a PE was decided in favor of the assessee. Consequently, the question of applying Section 44BB became moot.

4. Validity of the Assessment Order Passed Under Section 143(3):

The AO had passed the assessment order under Section 143(3), assessing the income of the assessee at ?12,50,40,506 against the declared income of nil. The CIT(A) upheld this order after conducting inquiries at the appellate stage.

The Tribunal found that the AO and CIT(A) had incorrectly presumed the existence of a PE without adequate evidence. Therefore, the assessment order based on this presumption was not valid.

Conclusion:

The Tribunal concluded that the assessee did not have a PE in India under the DTAA, and therefore, its income was not taxable in India. The appeal of the assessee was partly allowed, and the other grounds of appeal were rendered infructuous. The order was pronounced in open court on 20/10/2018.