2024 (9) TMI 865 - AT - Income Tax

Accrual of income in India - income from exploration activities in India - PE in India or India - AO Treated the gross receipt attributed to PE treating the same as deemed profit u/s 44BB had 10% and made addition - assessee contended before the A.O that its operation is less than 183 days it is covered under Article 5(5) of DTAA, which is special clause, rather than 5(1) of DTAA, which is a general clause of DTAA, which is a general clause, of DTAA between India- Singapore and therefore, doesn t have a PE and hence, its income from exploration activities in India is not taxable in India - HELD THAT - Whether an assessee carrying out specific activity of providing services of facilities in connection with exploration, exploitation or extraction of mineral oils, which activity falls within the scope and definition given in Article 5(5) of DTAA, then, whether the general provision of Article 5 of the DTAA would apply or not has been decided in favour of the Assessee in the case of M/s Narodic Maritime Ptd. Ltd. 2020 (1) TMI 1697 - ITAT DELHI once activities as defined para 5 or 3 are attracted, the minimum period test has to be applied and being specific activity based article, it will prevail over general rule of Article 5(1). If such activity based PE are to seen from the general rule perspective only then there is no requirement of such clauses in the treaty and threshold period. In that case there would be fixed place PE and agency PE. Even though the specific activity based PE can have a fixed place through which it carries out the activities, but prescribed threshold or minimum period has to be read into and such time period thus puts a limitation on the general rule of Article 5(1). Article 5(3) is an exception to Article 5(1) and 5(2) and would prevail notwithstanding Article 5(1) and 5(2). Since, the former is a specific provision. In the present case, admittedly, the services were carried out as per the contract between the assessee and Vedanta Ltd. for a period of 35 days in Financial Year 2019-20 and 58 days during Financial Year 2020-21 i.e. total 93 days, which being less than threshold of 183 days and in view of pacific Clause 5 of Article 5 of India-Singapore DTAA which mandates for providing services or facilities in contracting state for a period of more 183 days in a fiscal year in connection with exploration, exploitation and extraction of mineral oils in that contracting state, then only it shall be deemed to have a Permanent Establishment in a contracting state. In our opinion, the Department of Revenue has erroneously assumed that the assessee has PE in India. The said view of this Bench has already been fortified by the Co-ordinate Bench of the Tribunal in the case of M/s Narodic Maritime Ptd. Ltd. 2020 (1) TMI 1697 - ITAT DELHI therefore, we find merit in the Grounds of appeal, accordingly, we delete the addition made in the order impugned by allowing the Grounds of Appeal of the assessee.

Summary

Issues Involved:
1. Whether the assessee has a Permanent Establishment (PE) in India under Article 5(1) of the India-Singapore DTAA.
2. Whether the specific clause of Article 5(5) of the India-Singapore DTAA overrides the general clause of Article 5(1).
3. Whether the assessee's income from exploration activities in India is taxable.

Issue-wise Detailed Analysis:

1. Permanent Establishment (PE) under Article 5(1) of India-Singapore DTAA:
The assessee argued that it does not have a PE in India under the general clause of Article 5(1) of the India-Singapore DTAA because its operations in India were less than 183 days. The Assessing Officer (A.O.) contended that the assessee has a fixed place of business in India in the form of vessels and equipment, which constitutes a PE under Article 5(1). The A.O. maintained that Article 5(1) does not specify a minimum number of days for establishing a PE, thus the assessee's fixed place of business in India qualifies as a PE.

2. Interplay between Article 5(1) and Article 5(5) of India-Singapore DTAA:
The assessee asserted that Article 5(5) is a specific clause that should override the general clause of Article 5(1). According to Article 5(5), an enterprise is deemed to have a PE only if it provides services or facilities for more than 183 days in a fiscal year in connection with the exploration, exploitation, or extraction of mineral oils. The A.O. disagreed, stating that Article 5(5) does not preclude the application of Article 5(1) and other related articles regarding PE. The Tribunal referred to the case of Nordic Maritime Pte. Ltd., where it was held that a specific clause (Article 5(5)) overrides the general clause (Article 5(1)).

3. Taxability of Assessee's Income from Exploration Activities:
The assessee claimed that its income from exploration activities in India is not taxable under Article 5(5) of the India-Singapore DTAA, as its operations were conducted for only 93 days, which is less than the threshold of 183 days. The A.O. passed the final assessment order on 13/09/2023, adding deemed profit under Section 44BB at 10%, amounting to Rs. 21,49,63,900/-. The Tribunal found merit in the assessee's argument, citing the specific clause of Article 5(5), and concluded that the assessee does not have a PE in India. Consequently, the Tribunal deleted the addition made by the A.O.

Conclusion:
The Tribunal allowed the appeal, holding that the assessee does not have a PE in India under the specific clause of Article 5(5) of the India-Singapore DTAA. The Tribunal emphasized that specific provisions (Article 5(5)) override general provisions (Article 5(1)), and since the assessee's operations were less than 183 days, the income from exploration activities is not taxable in India. The appeal was allowed, and the addition made by the A.O. was deleted.

Order Pronounced:
The appeal of the assessee was allowed, and the order was pronounced in open court on 05th September 2024.