2013 (10) TMI 753 - AT - Income Tax

Whether the assessee had Permanent Establishment in India Assessee claim that installation activity continued for a period of less than 9 months, therefore, there is no installation PE in India - Assessee calculated the period starting from date of entry into India of barges Held that - As per Article 5 of the relevant DTAA, PE includes (h) a building site or construction or assembly project or supervisory activities in connection therewith but only where such site project or activity continues for a period of more than nine months - Assessee s plea is that PE existed only after barges landed in India is not correct - PE existed since the notification of award as the site was available to the assessee since then, for surveys at various stages of work progress Assessee has installation of PE in India. Whether the contract is divisible Held that - Contract may be construed as an umbrella contract yet is a divisible contract since under the same contract, the consideration for various activities have been stated separately Further, as per the terms and conditions of the contract, it is revealed that it is the discretion of ONGC to take only the platform erected by the assessee in Abu Dhabi, as it has a right to terminate on its own volition, without having installation thereof. The assessee in such an event, will not be entitled for any amount towards installation and commissioning but will be entitled for the contract price properly attributable to the erection of fabricated platform actually carried out by the assessee in accordance with the contract i.e. the pricing schedule (Schedule C) and milestone payment formula. Erection and fabrication can not be attributable to PE in India Held that - Reliance has been placed upon the judgment in the case of Ishikawajma-Harima Heavy Industries Ltd. vs DIT reported in 2007 (1) TMI 91 - SUPREME COURT - Erection and fabrication cannot said to be attributable to PE in India. All the activities prior to installation and commissioning are carried out in UAE and thus having regard to Article 7 of the DTAA, no income can be attributed to the PE in India - Profits can be attributed to the PE in India only in respect of installation and commissioning activities. The profits attributable to the supplies i.e. erection and fabrication of the platforms cannot be brought to tax in India. Applicability of provision of Section 44BB Held that - assessee is not in the business of providing services, neither any plant or machinery has been supplied on hire basis. The assessee is under the contract engaged in successful installation of off-shore platform. This activity cannot be characterized as facility provided by the assessee. Thus, business activity of the assessee does not fall within the meaning of section 44BB. Chargeability of interest u/s. 234B, 234C & 234D - Section 234B of the Act is attracted where in any financial year an assessee is liable to pay advance tax under sec. 208 and he has failed to pay such tax or where the advance tax paid by the assessee under sec. 210 is less than 90% of the assessed tax. Similarly, section 234C is attracted wherein in any financial year, an assessee is liable to pay advance tax under section 208 and he failed to pay such tax or the advance tax paid by the assessee and its current income on or before the specified dates is less than the specified percentage of the tax due on returned income Held that - Entire income is subject to tax at source under section 195 of the Act. The payer has also taken certificate from the Assessing Officer under section. 195(2) of the Act and thus, there was no liability to pay the advance tax under section 208 of the Act and in the absence of any liability, Sec. 234B and 234C and also consequentially section 234D could not be applied Decided in favor of Assessee.

Issues Involved:
1. Whether the assessee has a Permanent Establishment (PE) in India.
2. Whether the contract is divisible and the tax liability of the assessee.
3. Applicability of the provisions of Section 44BB.
4. Liability to pay interest under Sections 234B, 234C, and 234D.

Issue-wise Detailed Analysis:

1. Whether the assessee has a Permanent Establishment (PE) in India:
The tribunal found that the assessee had a project office in Mumbai since 1990, which was claimed to be opened at the instruction of ONGC as a mandatory requirement for the execution of the contract. The Assessing Officer (AO) opined that the project office constituted a PE under the India-UAE DTAA unless it was shown to be involved in ancillary and auxiliary activities, which the assessee failed to prove. The AO also noted that M/s Arcadia Shipping Ltd. acted as a dependent agent PE, actively involved in the project from pre-bidding to finalization. The tribunal upheld that the project office in India and M/s Arcadia Shipping Ltd. constituted PEs under Article 5 of the DTAA, and the assessee also had an installation PE as the project lasted more than the stipulated nine months.

2. Whether the contract is divisible and the tax liability of the assessee:
The AO observed that the contract with ONGC was a composite turnkey contract, not divisible into separate parts for tax purposes. The tribunal, however, held that the contract, though fashioned as turnkey, was divisible since the consideration for various activities was stated separately. The tribunal noted that the segregation of contract revenues into offshore and onshore activities was agreed upon at the stage of awarding the contract. The tribunal held that only the profits attributable to the PE in India could be taxed in India, and the profits from activities carried outside India (erection and fabrication) could not be attributed to the PE in India. This was supported by the Supreme Court's decision in Hyundai Heavy Industries Co. Ltd. and Ishikawajma-Harima Heavy Industries Ltd., which emphasized the principle of apportionment for composite contracts performed in different jurisdictions.

3. Applicability of the provisions of Section 44BB:
The tribunal held that Section 44BB, which applies to non-residents engaged in providing services or facilities in connection with, or supplying plant and machinery on hire for, the prospecting for or extraction or production of mineral oils, was not applicable to the assessee. The assessee was engaged in the installation of offshore platforms, which could not be characterized as providing services or facilities or supplying plant and machinery on hire.

4. Liability to pay interest under Sections 234B, 234C, and 234D:
The tribunal agreed with the assessee that there was no liability to pay advance tax under Section 208 as the entire income was subject to tax deduction at source under Section 195. Consequently, Sections 234B and 234C, which deal with interest for failure to pay advance tax, could not be applied. The tribunal noted that this position was supported by various judicial precedents, including the Supreme Court's decision in General Electric International Inc. and the Delhi High Court's decision in Jacobs Civil Inc. As for interest under Section 234D, the tribunal stated it would be consequential.

Conclusion:
The tribunal partially allowed the appeal, holding that the assessee had PEs in India, the contract was divisible, Section 44BB was not applicable, and interest under Sections 234B and 234C could not be levied. The profits attributable to the PE in India were limited to the installation and commissioning activities, and offshore supplies were not taxable in India.

← Previous Next →