2019 (2) TMI 700 - AT - Income Tax

PE in India - Grouting activities - Income accrued in India - applicability of section 44BB of the Act to Grouting activities - appellant company is engaged in providing grouting and precast solutions for subsea off-shore construction industry - DTAA - Held that - It is the settled principle of interpretation in view of Vienna Convention of 1969, that DTAA needs to be interpreted uberrimae fidei which means with utmost good faith . It means that the Assessing Officer/DRP are rewriting DTAA. The contention of the ld. DR that the assessee deliberately manipulated length of projects to always keep it under 270 days is an ill-placed allegation only. The observation by the Assessing Officer/DRP that grouting is not a simple masonry work and involves complex aspects does not take it out of the construction activities as mentioned in article 5(2)(h) of the India UAE DTAA because there is no bifurcation of simple and complex masonry/construction work under Article 5(2)(h) and any further classification as done by the Revenue would amount to rewriting DTAA. When there is no option in a given case, the general Article 5(1) would get attracted which means that when there is an option like in the present case , specific article will prevail. The establishment of PE in India is in respect of each assessment year only. Moreover, there is no bar in carrying on the activities year after year. The determination of existence of PE in India is to be made by reference to provision in DTAA. In our considered opinion, the ld. DR was trying to set up a new case which is not permissible by the decision of the Special Bench of the Tribunal in the case of Mahindra & Mahindra Vs. DCIT 2009 (4) TMI 207 - ITAT BOMBAY-H . DR also contended that the matter should be sent back to the Assessing Officer for redetermination of the period of stay in India. Multiple opportunities are not permissible to any authority to experiment in setting up case as held in the case of Rajesh Babubhai Damania 2000 (6) TMI 5 - GUJARAT HIGH COURT . Considering the facts of the case in totality, in the light of India UAE DTAA, we are of the considered opinion that there is no PE in India for the year under consideration. First grievance is accordingly, allowed. The alternative plea in respect of applicability of section 44BB of the Act becomes otiose.

Summary

Issues Involved:
1. Whether there is a Permanent Establishment (PE) in India from grouting activities.
2. Applicability of section 44BB of the Income-tax Act to grouting activities.
3. Non-taxability of receipts in connection with offshore supplies made to Indian customers.

Issue-wise Detailed Analysis:

1. Permanent Establishment (PE) in India from Grouting Activities:

The primary issue revolves around whether the appellant company's grouting activities in India constitute a Permanent Establishment (PE) under the India-UAE Double Taxation Avoidance Agreement (DTAA). The relevant Article 5 of the DTAA defines PE and includes specific provisions such as a place of management, branch, office, factory, workshop, and construction or assembly projects lasting more than nine months.

The appellant contended that their grouting activities fall under the construction activity specified in Article 5(2)(h) and do not meet the duration test of nine months, thus not constituting a PE. The Revenue, however, argued that Article 5(1) applies, which does not have a duration clause.

The Tribunal noted that the grouting activities involve complex processes but still fall under construction activities as per Article 5(2)(h). The Tribunal rejected the Revenue's reliance on the Fugro Engineers BV case, stating that the specific provisions of Article 5(2)(h) apply rather than the general provisions of Article 5(1). The Tribunal emphasized the principle of "generalia specialibus non derogant," meaning specific provisions override general ones.

The Tribunal also dismissed the Revenue's argument that the appellant manipulated the duration of their stay to avoid PE status, stating that such an allegation is ill-placed. The Tribunal concluded that there is no PE in India for the assessment year 2007-08, as the activities did not exceed the nine-month threshold.

2. Applicability of Section 44BB of the Income-tax Act to Grouting Activities:

Since the Tribunal concluded that there is no PE in India for the assessment year 2007-08, the alternative plea regarding the applicability of section 44BB of the Income-tax Act to grouting activities became irrelevant and was not addressed in detail.

3. Non-taxability of Receipts in Connection with Offshore Supplies:

The third issue concerning the non-taxability of receipts from offshore supplies to Indian customers was also rendered moot following the Tribunal's decision that there is no PE in India for the year under consideration.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, concluding that there is no Permanent Establishment (PE) in India for the assessment year 2007-08. Consequently, the alternative plea regarding section 44BB and the issue of non-taxability of offshore receipts were not considered further. The order was pronounced in the open court on 21.12.2018.