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2019 (4) TMI 1288 - AT - Income TaxPermanent Establishment ( PE ) in India - equipment PE - Fixed place of business in India - income accrued in India - UAE DTAA - Assessee is a tax resident of UAE, and is eligible to avail benefits if any, under the India UAE DTAA - HELD THAT - There is no dispute that, assessee s equipments as well as Personnel, were stationed on the vessel of Main Contractor, for carrying out grouting. It is also an admitted fact that equipment is the main place of business to assessee. Further, on analysis of the Clause 7.4 of agreement between assessee and Dolphin, relevant to assessment year 2008- 09, provides free of charge, food and accommodation to the personnel on-board of offshore vessel. It cannot be denied that the vessel , on which equipments were placed and personnel was stationed, as fixed place of business through which business is carried on by assesse. Thus in our view ingredients required under Article 5(1) of DTAA stands satisfied. Assessee placed heavy reliance on the order passed by Coordinate bench in its own case for assessment year 2007-08. We very carefully perused the same to follow the view taken therein, however we fail to do so in view of the fact that existence of a fixed place PE has been decided in that case holding that equipment cannot be held as fixed place of business. This observation of the Coordinate bench in assessee s own case is not in accordance with decision of Hon ble Supreme Court in case of Formula One World Championship Ltd vs CIT (International Taxation) 2017 (4) TMI 1109 - SUPREME COURT OF INDIA We therefore, hold that assessee has PE in the form of equipment as fixed place of business in India as per Article 5(1) of India-UAE Treaty and income earned by assessee from contracts are taxable in India. Addition made by AO towards offshore supplies as chargeable to tax in India - deduction u/s 44BB - HELD THAT - We have already held here in above that assessee has PE in India, offshore supplies are to be directly attributable to activities of PE in India through business connection in India in terms of section 9 (1) (i) of the Act. The alternate plea raised by assessee regarding applicability of special provision of section 44 BB. From the records placed before us, we do not see this issue has neither been dealt with/analysed by Ld.AO/DRP, nor has Ld.Counsel brought out before us as to whether contracts entered into by assessee which are inextricably connected with prospecting or production of Mineral Oil. Accordingly we set aside this issue to Ld.AO for determining applicability of sec.44BB having regards to ratio laid down by Hon ble Supreme Court in case of ONGC Gas Corpn. Ltd. vs. CIT 2015 (7) TMI 91 - SUPREME COURT . In the event the contracts are inextricably connected with prospecting or production of Mineral Oil, benefit must be granted to assessee under section 44 BB of the Act. Interest levied under section 234B - HELD THAT - Respectfully following the decision of Hon ble Delhi High Court in case of Sedco Forex International Drilling Co. Ltd vs. DCIT 2003 (10) TMI 40 - UTTARANCHAL HIGH COURT , we are inclined to delete the interest levied under section 234B of the Act.
Issues Involved:
1. Misrepresentation during assessment proceedings. 2. Non-cooperative approach by the assessee. 3. Existence of Permanent Establishment (PE) in India. 4. Taxability of offshore supplies made outside India. 5. Arbitrary estimate of taxable income at 10% of offshore supplies and services rendered in India. 6. Levying of interest under section 234B of the Income Tax Act. 7. Initiation of penalty proceedings under sections 271(1)(c) and 271B of the Income Tax Act. Detailed Analysis: Issue 1: Misrepresentation during Assessment Proceedings The learned Assessing Officer contended that the assessee misrepresented facts during the assessment proceedings. The Tribunal did not provide a specific ruling on this ground, indicating it may be general in nature and not requiring adjudication. Issue 2: Non-Cooperative Approach by the Assessee The learned Assessing Officer alleged that the assessee adopted a non-cooperative approach during the proceedings. Similar to the first issue, the Tribunal did not specifically address this ground, suggesting it may be general and not requiring adjudication. Issue 3: Existence of Permanent Establishment (PE) in India The Tribunal examined whether the assessee had a fixed place of business in India constituting a PE under Article 5(1) of the India-UAE DTAA. The assessee argued that it did not have a fixed place of business or a project office in India and that its activities fell under ‘Construction’ in Article 5(2)(h) of the treaty, requiring a duration of more than 9 months to constitute a PE. The Tribunal, however, held that the assessee’s equipment and personnel on the vessel of the main contractor constituted a fixed place of business, thus satisfying the requirements of Article 5(1) of the DTAA. Consequently, the Tribunal concluded that the assessee had a PE in India for the assessment years under consideration. Issue 4: Taxability of Offshore Supplies Made Outside India The Tribunal addressed whether offshore supplies made by the assessee outside India were chargeable to tax in India. Given the existence of a PE in India, the offshore supplies were considered attributable to the PE and thus taxable in India under section 9(1)(i) of the Income Tax Act. The Tribunal remanded the matter to the Assessing Officer to determine the applicability of section 44BB of the Act, following the Supreme Court’s ruling in the ONGC case, to ascertain if the contracts were inextricably connected with the prospecting or production of mineral oil. Issue 5: Arbitrary Estimate of Taxable Income at 10% of Offshore Supplies and Services Rendered in India The Tribunal noted that the DRP had directed the Assessing Officer to attribute 10% of the gross receipts as the profit of the PE. The Tribunal upheld this attribution rate, dismissing the assessee’s contention that the estimate was unreasonable and excessive. Issue 6: Levying of Interest Under Section 234B of the Income Tax Act The Tribunal found merit in the assessee’s argument against the levy of interest under section 234B, citing the Delhi High Court’s ruling in Sedco Forex International Drilling Co. Ltd vs. DCIT, which held that when the payer is responsible for deducting tax at source, the payee-assessee cannot be held liable for interest under section 234B. Consequently, the Tribunal deleted the interest levied under section 234B. Issue 7: Initiation of Penalty Proceedings Under Sections 271(1)(c) and 271B of the Income Tax Act The Tribunal observed that the grounds related to the initiation of penalty proceedings were consequential in nature and did not require adjudication. The Tribunal dismissed these grounds as not pressed by the assessee. Conclusion: The Tribunal concluded that the assessee had a PE in India, and the income from offshore supplies and services rendered in India was taxable in India. The matter was remanded to the Assessing Officer to determine the applicability of section 44BB for the contracts. The Tribunal also deleted the interest levied under section 234B and dismissed the penalty-related grounds as not pressed. The appeals were partly allowed as per the detailed findings.
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