2008 (8) TMI 396 - AT - Income Tax

Liability to be taxed u/s. 44BB - Double Taxation Relief - DTAA between India and Netherlands - whether moving vessels could constitute fixed place of business under para 1 of article 5? - PE in India or not - Whether the payments in respect of the works carried out by the assessee constitute fees for technical services? - Basically, the case of the assessee is that clause (i) of paragraph 2 of Article 5 is applicable. Under this clause, there cannot be a PE as the works activities continued for less than 183 days. As against the aforesaid, the case of the learned DR is that the aforesaid clause is not applicable at all as it was not a case of an installation or structure used for the exploration of natural resources. In fact, the assessee did not erect any structure or installation. Therefore, paragraph 1 of Article 5 was applicable. HELD THAT - In the year under consideration, it carried out three works for the ONGC, Cairn Energy and Ganesh Benzo Plast. The work in respect of ONGC involved drilling two bores in Godavari Delta Region and testing the material obtained on board laboratory. This work lasted for 13 days. The work with Cairn Energy also involved geo-physical and geo-technical investigation in the Gulf of Khambat at eight sites for which the assessee mobilized its own equipment. This work lasted 41 days. The work with Ganesh Benzo Plast was executed on ONGC vessel and involved geo-technical investigation. This work lasted 37 days. Thus, each of the work was of less than 183 days duration and the duration of all the three works was also less than 183 days. Paragraph 1 of article 5 of the DTAA, which defines the term 'PE' to mean a fixed place of business through which the business of the enterprise is wholly or partly carried on. It was pointed out that the requirement of this paragraph is only the fixed place of business through which the business is wholly or partly carried on. There is no other requirement for constituting the PE. Having considered the facts of the case, we are of the view that it is not a case of any installation or structure used for exploration of natural resources. Therefore, the aforesaid cl. (i) does not provide any clue for determining this issue. On consideration of various case laws and the commentary above, it is clear that no length of time is prescribed in respect of paragraph 1. To our mind, in such a situation if the place of business is available to the assessee for the period in which its independent work can be completed, it shall constitute a PE and it is accordingly held. We find that the issue has been considered in all its aspects in the case of De Beers India Minerals (P) Ltd. 2007 (2) TMI 577 - ITAT BANGALORE . The difference in facts is only that in that case, services were performed from helicopter hired by that assessee, while the services are performed in this case on the vessel owned by the ONGC and in Godavari delta region. This difference does not make any difference to the conclusion for the reason that there is no transfer of knowledge or skill or expertise in this case as was in that case. The assessee has provided results of its investigations and not the technical knowledge or skill, etc. The assessee has also not provided any technical plan or design as it has merely supplied the data, which will be used subsequently by the principals for locating suitable sites for exploration. Following that order, it is held that the payment did not amount to fee for technical services. Computation on mobilization/demobilization charges - presumptive income u/s 44BB - The issue becomes very clear from the decision in the case of Halliburton Offshore Services Inc. 2007 (9) TMI 230 - UTTARAKHAND HIGH COURT , in which it was mentioned that it is clear from the perusal of section 44BB that all amounts either paid or payable (whether in India or outside India) or received or deemed to be received (whether in India or outside India) are mutually inclusive, and includible in the receipts mentioned in sub-section (2) of section 44BB. Thus, there is a clear authority of the jurisdictional High Court that all amounts mentioned in sub-section (2) are to be included for the purpose of calculating deemed income on the basis of receipts. There is no doubt that the assessee has received the amount and, thus, the same is includible in the receipts for working out the presumptive income. In the result, the appeal of the assessee is dismissed, and the appeal of the revenue is allowed.

Summary

Issues Involved:
1. Whether the assessee had a Permanent Establishment (PE) in India.
2. Whether the payments received by the assessee constituted fees for technical services.
3. Whether mobilization/demobilization charges should be included in the gross revenue for computing presumptive income under section 44BB.

Detailed Analysis:

Issue 1: Permanent Establishment (PE) in India
The primary issue was whether the assessee, a non-resident company incorporated under the laws of the Netherlands, had a PE in India. The assessee had undertaken three contracts in India with ONGC, Cairn Energy, and Ganesh Benzo Plast, with a cumulative duration of 91 days. The lower authorities concluded that the assessee had a PE in India based on the nature of work and the locations where the work was performed.

The assessee argued that under Article 5 of the DTAA between India and the Netherlands, a PE would only be established if the activities continued for more than 183 days. The assessee cited various judgments, including CIT v. Visakhapatnam Port Trust, Dy. CIT v. Subsea Offshore Ltd., and an Advance Ruling A No. P-11 of 1995, to support the contention that the duration of activities was below the threshold required to constitute a PE.

The revenue countered that the contracts involved fixed places of business in India, such as drilling locations and vessels, and that the duration of activities was immaterial under paragraph 1 of Article 5, which defines a PE as a fixed place of business through which the business is wholly or partly carried on.

The Tribunal held that the assessee had a PE in India under paragraph 1 of Article 5, as the work was carried out on Indian soil and territorial waters on-board an Indian ship. The Tribunal noted that the assessee had been conducting investigations in India on an ongoing basis, indicating a real projection of the foreign enterprise onto Indian soil.

Issue 2: Fees for Technical Services
The revenue argued alternatively that the payments received by the assessee constituted fees for technical services under clause (b) of paragraph 5 of Article 12 of the DTAA. However, as per paragraph 7, such fees would be considered under Article 7 if the enterprise carries on business through a PE in the other Contracting State.

The assessee relied on the decision of the Bangalore Bench of the Tribunal in ITO v. De Beers India Minerals (P.) Ltd., where it was held that payments for services that do not involve the transfer of technical knowledge or skill do not constitute fees for technical services. The Tribunal agreed with the assessee, holding that the payments did not amount to fees for technical services, as there was no transfer of technical knowledge or skill, and the assessee merely provided data and results of investigations.

Issue 3: Mobilization/Demobilization Charges
The revenue contended that mobilization/demobilization charges should be included in the gross revenue for computing presumptive income under section 44BB, relying on the decisions of the Uttarakhand High Court in Sedco Forex International Inc. v. CIT and CIT v. Halliburton Offshore Services Inc. These decisions held that section 44BB considers all amounts paid or payable, whether in India or outside India, for calculating the aggregate amount to compute 10 percent profit and gains.

The assessee argued that only charges attributable to activities carried out in India should be included, citing the order of ITAT, Delhi, in R&B Falcon Drilling Co. v. Asstt. CIT. However, the Tribunal followed the jurisdictional High Court's decisions, holding that all amounts received by the assessee, including mobilization/demobilization charges, are to be included in the receipts for computing presumptive income under section 44BB.

Conclusion:
- The appeal of the assessee was dismissed, affirming that the assessee had a PE in India and the payments did not constitute fees for technical services.
- The appeal of the revenue was allowed, including mobilization/demobilization charges in the gross revenue for computing presumptive income under section 44BB.