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2020 (1) TMI 1697 - AT - Income TaxRevision u/s 263 - Examination of Permanent Establishment (PE) under Article 5(1) and Article 5(5) of the India-Singapore DTAA - only case of the Ld. CIT is that the AO should have examine the applicability of fixed place PE under Article 5(1) as the seismic vessels through which the assessee carried out activities in India constitute a fixed place PE through which it has carried out the business activity in India - whether assessee who is carrying out specific activity of providing services or facilities in connection with the exploration, exploitation or extraction of mineral oils, which activity falls within the scope and definition given in Article 5(5), then whether general provision of Article 5(1) would apply or not? HELD THAT - There are three types of PE contemplated under Article 5, firstly an establishment which is carrying out a business from a fixed place of business like office, branch, etc. and second type is agency PE. The third type of PE is for construction and installation sites; supervisory or carrying out assembly project on a site, or services or facilities in connection with the exploration, exploitation or extraction of mineral oils etc., which are specific activity based PE generally with a threshold period, which here in this case is 183 days. Article 5(1) contains the general rule for permanent establishment that it must be a fixed place business at the disposal of the enterprise through which the business enterprise carries on its business. Article 5(2) contains illustrative list of places of business which prima facie constitute PE, provided it satisfies the requirement of Article 5(1). Article 5(3) to 5(5) contains special rule for construction and installation site or services or facilities in connection with the exploration, exploitation or extraction of mineral oils etc. and it is a limitation on the general provision of Article 5(1). Once activities as defined para 5 or 3 are attracted, the minimum period test has to be applied and being specific activity based article, it will prevail over general rule of Article 5(1). If such activity based PE are to seen from the general rule perspective only then there is no requirement of such clauses in the treaty and threshold period. In that case there would be fixed place PE and agency PE. Even though the specific activity based PE can have a fixed place through which it carries out the activities, but prescribed threshold or minimum period has to be read into and such time period thus puts a limitation on the general rule of Article 5(1). Hon ble Uttarakhand High Court in the case of DIT vs. Hyundai Heavy Industries Co. Ltd. 2018 (5) TMI 1552 - UTTARAKHAND HIGH COURT have dealt the similar issue wherein, held that division bench of this court upheld the findings of the ITAT that Article 5(3) is an exception to Article 5(1) and 5(2) and would prevail notwithstanding Article 5(1) and 5(2). Since, the former is a specific provision. Thus, the conclusion of the Assessing Officer is consonance with judgment of jurisdictional High Court; therefore, it cannot be held that the assessment order is erroneous in so far as prejudicial to the interest of the Revenue and therefore, the Ld. CIT was not justified in cancelling the assessment order in his revisional jurisdiction u/s. 263 of the Act. Moreover, AO has not only carried out proper enquiry but also examined the issue in detail and reach to a conclusion which is permissible view and Ld. CIT cannot cancel the assessment based on his opinion. Accordingly, the impugned order passed u/s. 263 is quashed. Appeal filed by the assessee is allowed.
Issues Involved:
1. Invocation of Section 263 of the Income Tax Act, 1961. 2. Compliance with the jurisdictional conditions of Section 263. 3. Examination of Permanent Establishment (PE) under Article 5(1) and Article 5(5) of the India-Singapore DTAA. 4. Nature and stipulations of the contract. 5. Interpretation of seismic vessels as Permanent Establishment. 6. Validity of the Ld. CIT's order in light of earlier judicial mandates. Issue-wise Detailed Analysis: 1. Invocation of Section 263 of the Income Tax Act, 1961: The assessee contested the invocation of Section 263 by the Ld. Commissioner of Income Tax (International Taxation-3), arguing it was wrongful. The Ld. CIT had issued a show cause notice u/s 263, claiming the seismic vessel in Indian waters constituted a "fixed place permanent establishment" under Article 5(1) of the India-Singapore DTAA, thereby making the assessee's receipts taxable in India. The Ld. CIT contended that the AO and the assessee erroneously resorted to Article 5(5) without considering Article 5(1). 2. Compliance with the jurisdictional conditions of Section 263: The assessee argued that the order passed by Ld. CIT u/s 263 did not fulfill the jurisdictional conditions envisaged by Section 263. The AO had conducted detailed enquiries and accepted the assessee's contention that no PE existed in India based on the activities being less than 183 days, as per Article 5(5) of the DTAA. The Ld. CIT's order was challenged on the grounds that it was against the settled legal dictum and did not appreciate the detailed enquiries made by the AO. 3. Examination of Permanent Establishment (PE) under Article 5(1) and Article 5(5) of the India-Singapore DTAA: The Ld. CIT's main contention was that the seismic vessel constituted a "fixed place PE" under Article 5(1), thus making the receipts taxable in India. The assessee, however, argued that Article 5(5) should apply, as it specifically deals with services or facilities in connection with the exploration, exploitation, or extraction of mineral oils, which were carried out for less than 183 days. The Tribunal noted that Article 5(3) to 5(5) contains special rules for specific activities with a threshold period and should prevail over the general rule of Article 5(1). 4. Nature and stipulations of the contract: The assessee provided 3D Marine Seismic Data Acquisition Services under a contract with Cairn India Limited. The AO had verified the contract, the duration of activities, and the documentary evidence, concluding that the activities in India were for 102 days, thus not constituting a PE under Article 5(5). The Ld. CIT, however, held that the AO should have considered Article 5(1) first. 5. Interpretation of seismic vessels as Permanent Establishment: The Ld. CIT held that the seismic vessel constituted a "fixed place PE" as it was at the disposal of the assessee within a specific geographical location. This interpretation was based on judgments such as Fugro Engineers B.V. vs ACIT and M/s Poompuhar Shipping Corp. Ltd. vs ITO(IT), which supported the view that a moving ship or equipment could constitute a PE if it showed commercial and geographical coherence. 6. Validity of the Ld. CIT's order in light of earlier judicial mandates: The Tribunal referenced the Uttarakhand High Court's judgment in DIT vs. Hyundai Heavy Industries Co. Ltd., which held that Article 5(3) is an exception to Article 5(1) and 5(2) and would prevail as it is a specific provision. The Tribunal concluded that the AO's assessment was in line with this judgment and that the Ld. CIT was not justified in cancelling the assessment order within his revisional jurisdiction u/s 263. The AO had conducted proper enquiries and reached a permissible view, making the Ld. CIT's order erroneous. Conclusion: The Tribunal quashed the Ld. CIT's order passed u/s 263, holding that the AO had conducted a proper enquiry and reached a permissible conclusion. The appeal filed by the assessee was allowed.
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