1997 (10) TMI 93 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of the assessee's income in India.
2. Definition and applicability of "Permanent Establishment" under the Double Taxation Agreement (DTA) between India and the UK.

Summary:

Issue 1: Taxability of the Assessee's Income in India
The revenue appealed against the CIT(A)'s order for the assessment year 1986-87, contesting that the assessee's income is taxable in India. The assessee, a non-resident company incorporated in the UK, received payments from Mazagaon Dock Ltd. and Oil & Natural Gas Commission for inspection and repairing of submarine pipeline networks. The Assessing Officer, relying on Article 7(1) read with Article 5(2)(h) and (i) of the DTA, held that the profit arising from these receipts is taxable in India and estimated the profit at 10% of the receipts.

Issue 2: Definition and Applicability of "Permanent Establishment"
The CIT(A) accepted the assessee's contention that a ship cannot be considered a fixed place of business and that the assessee did not have a "Permanent Establishment" in India as defined in Article 5 of the DTA. The Departmental Representative argued that the assessee's equipment constituted a fixed place of business under Article 5(1) of the DTA and was covered by clauses (h) and (i) of Article 5(2). However, the assessee's counsel countered that the vessel used for inspection and repairs cannot be termed a fixed place of business and that the 1994 amendment to the DTA, which included clause (k), did not apply to the assessment year 1986-87.

The Tribunal examined the definitions and clauses of the DTA, noting that a "Permanent Establishment" requires a fixed place of business with a substantial and enduring presence. Citing precedents, the Tribunal concluded that the assessee's vessel, being in India for only 2.5 months, did not meet the criteria for a "Permanent Establishment." The Tribunal upheld the CIT(A)'s decision that the assessee's profits are taxable only in the UK under Article 7 of the DTA.

Conclusion
The Tribunal dismissed the revenue's appeal, affirming that the assessee did not have a "Permanent Establishment" in India and thus its profits are taxable solely in the UK.