2017 (10) TMI 307 - AT - Income Tax

Revenue receipts from charterer hire of AHTS for exploration and exploitation by ONGC in offshore areas of operation in India - taxable in the hands of the assessee in India or not under Article 7 of the Treaty by holding that the assessee has a PE in India within the meaning of Article 5(2) of India Dutch and India UK DTAA - P.E. in India - Held that - Here in this case vessel given on hire by the assessee company to ONGC, for ONGC s operation will not qualify for a place of management for the assessee as contemplated in Article 5(2)(a), because such a leasing/hiring has to be through fixed place of business. The vessel here in this case cannot be reckoned either as fixed place of business or a place cf management . We have already discussed in detail above that firstly, personnel do not belong to the assessee and secondly, in any case the personnel are under the control and directions of ONGC and qua the assessee these personnel do not have any wide responsibility in participation of the decisions of hiring, therefore, it cannot be held that the activity of the lessor/assessee is done by these personnel or it constitute an entrepreneurial activity which can be reckoned as PE. Thus, in our conclusion, firstly, the hiring of AHTS vessel of assessee by ONGC for its operation in India does not qualify to make vessel a place of management for the assessee in India; secondly, the Crew and Master of the vessel does not belong to the assessee as settled by the Hon ble High Court in assessee s own case; and lastly, in any case Master and Crew of the vessel do not have power to make significant decision over the assessee, because they are under control and directive of ONGC as per the agreement discussed above. It cannot he held that assessee has some kind of.PB, because the assessee vessel cannot be reckoned as installation or structure used for exploration and exploitation of national resources as it is being done by the ONGC. The ONGC has only hired the vessel from assessee for carrying out exploration of oil and natural gases and therefore, under this clause aiso it cannot be held that the assessee s vessel/ AHTS constitute a PE in India. Thus, in our view there exists no PE of assessee in India and therefore, the revenue from ONGC cannot be taxed in India in terms of Article 7 of DTAA. On this ground alone the assessee gets relief from taxation. - Decided in favour of assessee.

Summary

Issues Involved:
1. Permanent Establishment (PE) determination under Article 5(2) of the DTAA.
2. Applicability of Section 44BB of the Income-tax Act, 1961.
3. Inclusion of reimbursement in deemed profit computation under Section 44BB.

Issue-wise Detailed Analysis:

1. Permanent Establishment (PE) Determination under Article 5(2) of the DTAA:
The primary issue was whether the Anchor Handling Tug cum Supply Vessel (AHTS) provided to ONGC constituted a PE of the assessee under Article 5(2) of the DTAA between India and Denmark/UK. The assessee argued that it did not have any fixed place of management, branch, office, factory, or workshop in India, and thus no PE could be established. The Assessing Officer (AO) and CIT(A) held that the vessel itself constituted a PE under Article 5(2)(a) as a "place of management," based on the UN Model commentary. However, the Tribunal found that the vessel could not be considered a fixed place of management, as the control and management of the business were situated in Denmark/UK, where significant decisions were made. The Tribunal concluded that the vessel did not qualify as a PE since it was under the control and direction of ONGC, and the personnel on board were not employees of the assessee but were provided by a group company, RAPM. The Tribunal referred to previous decisions, including those affirmed by the Hon'ble Uttarakhand High Court, to support this conclusion.

2. Applicability of Section 44BB of the Income-tax Act, 1961:
The AO applied a deemed profit rate of 10% under Section 44BB, arguing that the assessee's income from ONGC was taxable in India. The assessee contended that Section 44BB was not applicable as its income was assessable as "business profits" under Article 7 of the DTAA, and in the absence of a PE, it was not taxable in India. The Tribunal, having concluded that the assessee did not have a PE in India, held that the revenue from ONGC could not be taxed in India under Article 7 of the DTAA. Consequently, the provisions of Section 44BB were deemed inapplicable.

3. Inclusion of Reimbursement in Deemed Profit Computation under Section 44BB:
The AO included the reimbursement of ?34,45,380 received by the assessee towards expenses incurred on supply of lube oil in the deemed profit computation under Section 44BB. The assessee argued that this amount, being a reimbursement of actual expenses, did not result in income and should not be included in the computation. The Tribunal, having found that the assessee did not have a PE in India and that Section 44BB was not applicable, did not need to address this issue further. The Tribunal's decision rendered this issue academic and infructuous.

Conclusion:
The Tribunal concluded that the assessee did not have a PE in India under the DTAA, and therefore, its income from ONGC was not taxable in India. Consequently, the provisions of Section 44BB were not applicable, and the issue of including reimbursement in the deemed profit computation became academic. The appeals were allowed in favor of the assessee, and similar findings were applied mutatis mutandis to the other assessment years under consideration.