2012 (11) TMI 427 - AT - Income Tax

Indo-Mauritius DTAA - contracts work - Permanent Establishment (PE) in India - Held that - Considering the chart tabulated by CIT(A) the duration of first contract is 8 months 11 days and no preparatory work was done by the assessee in this regard as the construction designs were provided by the third party through independent contracts. DR could not controvert the finding given by the CIT(A) in this regard. Thus it becomes apparent that the duration in respect of first contract is only 8 months and 11 days, which is less than 9 months as per Article 5 of the Indo-Mauritius DTAA to constitute permanent establishment. The duration of second contract as per the above table is only 10 days and the third contract is 3 months and 14 days. Patently such duration is less than the prescribed period of 9 months. No material has been placed on record by the DR to show that there is any infirmity in the impugned order in recording the starting or completion dates of duration of such contracts. Since the duration in all these contracts is less than nine months, obviously the mandate of article 5 cannot be activated. In the absence of any PE there cannot be any question of taxability of business profit as per Article 7 - in favour of assessee.

Summary

Issues:
1. Whether the direction of the learned CIT(A) to delete the amount received from contract work done in India, ignoring the Permanent Establishment (PE) in India, was correct.

Analysis:
1. The appeal by the Revenue challenged the CIT(A)'s order regarding the deletion of the amount received from contract work in India, which was considered attributable to the Permanent Establishment (PE) in India. The assessment order determined the total income against the declared income by the assessee. The CIT(A) had earlier confirmed the action of taxing income under section 44BB. The Tribunal, in a previous order, directed the CIT(A) to examine the duration of work for each contract independently to determine the existence of a PE. The Tribunal emphasized that the actual duration of work at the site, not the dates of invoices or advances, should be considered. The CIT(A) subsequently found that the duration of work for each contract did not exceed 9 months, leading to the conclusion that there was no PE in India.

2. The Tribunal's direction to examine the duration of work for each contract independently was implemented by the CIT(A), who analyzed the actual dates of commencement and completion for three contracts. The durations for each contract were found to be less than 9 months, indicating no PE as per the DTAA between India and Mauritius. The Revenue contended that the CIT(A) erred in considering certain dates without verifying them with the Assessing Officer. However, it was argued that no new material was presented before the CIT(A). The Tribunal's direction was specifically focused on determining the existence of a PE based on the duration of work for each contract, which was correctly followed by the CIT(A) in this case.

3. The Tribunal upheld the CIT(A)'s findings that the duration of work for each contract was less than 9 months, thereby concluding that no PE existed as per the DTAA. Without a PE, the question of taxability of business profit under Article 7 did not arise. The appeal was dismissed, affirming the CIT(A)'s order. The entire process highlighted the importance of considering the actual duration of work at the site to determine the existence of a Permanent Establishment for tax purposes under the applicable treaty provisions.

This detailed analysis of the judgment provides a thorough understanding of the issues involved and the legal reasoning applied in the decision-making process.