2015 (7) TMI 113 - AT - Income Tax

Service PE in India - India Singapore DTAA - whether in the case of the assessee the Service PE can be said to be established/constituted within the scope of Article 5(3) or Article 5(6)? - Held that - The threshold period under this para is 90 days and more; or if such activities are performed for a related enterprise then period of more than 30 days. The Article 5(6) explicitly provides that it applies to services other than those covered by Article 5(4) and 5(5) however the said article is silent as regards its relationship with Article 5(3). Thus Article 5(6) cover various services which are not covered by para 4 and 5 of Article 5 and technical services as defined in Article 12. What kind of services have been contemplated in para 6 of Article 5 have not been elaborated in the treaty or elsewhere. In contradistinction para 3 of Article 5 is very specific and therefore such specific activities cannot be read into para 6 of Article 5. There cannot be a overlapping of activities carried out within the ambit of Article 5(3) and furnishing of services as stated in Article 5(6). Both should be read independent of each other or else there was no requirement of enshrining separate provisions. If the activities relating to construction or installation are specifically covered under Article 5(3) then one need not to go in Article 5(6). Thus the activity of the assessee which is purely installation services has to be scrutinized under Article 5(3) only and not within Article 5(6). Project relating to contract with Allseas - finding of the DRP is that employees of the assessee who have stayed in India were for duration of minimum 3 days to 101 days and on second trip the duration ranges from 14 days to 48 days which aggregates to less than 183 days - Held that - The DRP has not given any finding that the period of stay of employees has crossed 183 days. The only case of the DRP is that the assessee constitute a service PE within Article 5(6) which prescribed for 90 days and 30 days. Thus so far as contract with Allseas the same do not constitute a service PE as period of stay in India is less than 183 days. So far as contract with Swiber GB Gaslift Project also the number of days as per the finding of DRP itself is much less than 183 days and therefore this project also do not constitute Service PE in India. Contract with Swiber BG Hydra Project - Held that - Though the finding of the DRP is that it is less than 183 days but the AO in the final assessment order has mentioned that it has crossed 183 days as the contract was signed on 01.08.2009 and the project was completed on 12.02.2010. In this regard the observation of the AO is that date of signing of the contract has to be reckoned for calculating the number of days. Such an observation of the Ld. AO cannot be upheld because at the time of the signing of the contract no actual activity for the installation purpose had yet started. The date of signing of contract merely signifies that the parties have agreed to terms and conditions for carrying out the work. The actual date should be reckoned from the preparatory activities letting to the performance of the contract of the core business activity i.e. the installation activity in the present case. In support of this proposition the reliance placed by the learned senior counsel in the case of Cal Dive Marine Construction (2009 (6) TMI 21 - AUTHORITY FOR ADVANCE RULINGS) is clearly applicable wherein the Authority had held that date of signing of contract cannot be treated as the starting point. Thus the threshold of the time limit as calculated by the AO from the date of signing of agreement cannot be accepted. Accordingly in the case of Swiber BG Hydra Project also the number of days is far below than 183 days which fact been accepted by the DRP and therefore this project also does not constitute service PE in India. The installation activity carried out by the assessee in terms of various contracts in India separately do not constitute PE in India under Article 5(3) as the threshold time limit of 183 days for each project is much less. Accordingly the revenue from assessee s contract for installation activity in India is not taxable in India either under Article 7 or under the Act as the assessee does not have PE in India. Levy of interest u/s 234B - Held that - This ground as admitted by both the parties is covered by the decision of Hon ble jurisdictional High Court in the case of NGC reported in 2009 (1) TMI 174 - BOMBAY HIGH COURT . Accordingly we hold that no interest u/s 234B is leviable in the case of the assessee. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the assessee constituted a Service Permanent Establishment (PE) in India under Article 5(6) of the India-Singapore DTAA.
2. Applicability of Article 5(3) versus Article 5(6) of the India-Singapore DTAA.
3. Duration test for constituting Service PE under Article 5(3).
4. Aggregation of days for multiple projects to determine PE status.
5. Incorrect computation of revenue from BG Hydra Contract with Swiber.
6. Incorrect computation of TDS.
7. Levy of interest under section 234B.

Detailed Analysis:

1. Whether the assessee constituted a Service Permanent Establishment (PE) in India under Article 5(6) of the India-Singapore DTAA:
The assessee, a Singapore-based company, engaged in subsea installation services, was assessed by the AO who concluded that the assessee had a Service PE in India under Article 5(6) of the India-Singapore DTAA. The DRP upheld this view, noting that the stay of employees exceeded 90 days, thus constituting a Service PE.

2. Applicability of Article 5(3) versus Article 5(6) of the India-Singapore DTAA:
The primary contention was whether Article 5(3) or 5(6) applied. Article 5(3) pertains to construction, installation, or assembly projects, requiring a duration of more than 183 days to constitute a PE. Article 5(6) deals with furnishing services through employees for more than 90 days. The tribunal concluded that the assessee's activities fell under Article 5(3) as they were purely installation services, not general services, thus Article 5(6) was not applicable.

3. Duration test for constituting Service PE under Article 5(3):
The tribunal examined the duration of each project:
- Allseas Project: Employees stayed for 3 to 101 days, with a second trip ranging from 14 to 48 days, aggregating to less than 183 days.
- Swiber BG Gaslift Project: Duration varied from 7 to 93 days, below the 183-day threshold.
- Swiber BG Hydra Project: The AO incorrectly calculated the duration from the contract signing date. The correct duration, excluding the signing date, was below 183 days.

4. Aggregation of days for multiple projects to determine PE status:
The tribunal rejected the department's argument to aggregate days across different projects. Citing precedents, it held that each project must be viewed independently unless they form a coherent whole geographically and commercially. Each of the assessee's projects was standalone, and none individually met the 183-day threshold.

5. Incorrect computation of revenue from BG Hydra Contract with Swiber:
This issue became moot as the tribunal concluded that no PE was constituted under Article 5(3), making the revenue computation irrelevant.

6. Incorrect computation of TDS:
The AO had granted the credit, rendering this issue infructuous.

7. Levy of interest under section 234B:
The tribunal, following the jurisdictional High Court's decision in NGC (313 ITR 187), held that no interest under section 234B was leviable.

Conclusion:
The tribunal concluded that the assessee did not constitute a PE in India under Article 5(3) as none of the projects individually exceeded the 183-day threshold. Consequently, the revenue from the assessee's contracts was not taxable in India. The appeal of the assessee was allowed, and other grounds were rendered infructuous or covered by existing precedents.