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TMI Blog2005 (1) TMI 591X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to assessment year 1998-99. After consideration of the matter, we have admitted the additional ground of appeal in the appeals as aforesaid. 3. The first ground in these appeals is that the ld. CIT(A) erred in holding that the assessees were not entitled to any relief under relevant Agreement for Avoidance of Double Taxation (hereinafter referred to as DADT ). We shall revert to this ground of appeal later on. 4. The second ground in these appeals is that the ld. CIT(A) erred in holding that the salary received outside India by these assessees is taxable in India on the basis that the same were deemed to have been earned in India. According to the assessees, the payment received by them abroad for the period when they were not working in India is not the income deemed to accrue or arise in India under the provisions of Income-tax Act, 1961 and therefore, cannot be taxed in India. We find that identical issue had arisen in relation to various employees of SFDI in the earlier years, the matter travelled to Hon ble High Court of Uttaranchal and the Hon ble Jurisdictional High Court in their judgment reported at CIT v. Sedco Forex International Drilling Co. [2003] 264 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave nationality of more than one country. Thus, we are concerned with AADT between India and France; India and Canada; India and Netherlands; India and USA; India and Denmark; India and Australia and India and UK. Discordantly, SFDI being the employer and agent in these appeals is resident of Panama with whom India does not have, till date, any AADT. Assessees before us received salary from SFDI, who had entered into a contract with ONGC for development of rig known as Trident-II for drilling operations in off-shore areas of India. In these appeals, it has not been disputed by the revenue that these 41 assessees were resident of various countries as stated and that India has entered into AADT with those countries. 9. At the outset, we may mention that the issue whether any relief is available to the assessees under respective AADT is not an issue arising before us for the first time. The same issue has arisen before the Tribunal in a number of cases in the past and decided upon against the assessees. However, these assessees have through their ld. counsel, claimed before us that there are certain errors of facts and law in the earlier orders of the Tribunal and have therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 1990-91 in ITA No. 5259/Del./1993 and many others. The ITAT Delhi Bench E followed the decision of the Tribunal in the case of Mr. I. Marquez (ITA No. 4547/Del./1991) and Mr. M. Timms (ITA No. 4561/Del./91) and rejected the assessees appeals. 11. The assessees once again disputed the levy of tax in India on salary received by them from SFDI for Assessment year 1991-92 before the ITAT New Delhi in ITA No. 2183/2184 2192/Del./1995. Though in earlier appeals, the Tribunal had decided against the assessees, it was argued that the Tribunal had not properly appreciated the contentions of the assessees while interpreting clause (2) of Article XIV. It was emphasized that under sub-clause ( c ) of clause 2, there should have been actual deduction in respect of the remuneration paid in computing the profit of a permanent establishment. That sub-clause did not talk about any notional deduction of salary or remuneration. As such while determining the profit of SFDI chargeable to tax in India under section 44BB of the Act, it could not be presumed that the remuneration payable to the assessees concerned had been deducted while estimating net profit @ 10% specified in section 44BB(2). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Panama as is borne out from the judgment of the Uttaranchal High Court in the case of this enterprise reported in 264 ITR 320. India does not have any tax treaty with Panama. The Hon ble High Court in the case of Sedco Forex International Limited supra, has already upheld that the payment of salary to such individual is income earned and taxable in India. Profits of the employer s enterprise have also been subjected to tax in India by operation of section 44BB of the Act. The Tribunal in ITA No. 2184/Del./95 and others declined to accept the proposition that the remuneration paid to such employees have not been deducted in computing the profits of such enterprise chargeable to tax in India. The learned counsel for the assessee makes a statement that the Tribunal did not consider the application of clause ( c ) a of Article XIV(2) of AADT with France with reference to the term "permanent establishment" (PE) the enterprise from whom the remuneration has been received by the appellant. There being no treaty with Panama, the employer s enterprise will have no PE in the first place. This will have the consequence that clause( c ) of Article XIV(2) will not be applicable to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... office, a factory, a workshop, a warehouse, a mine, a quarry or other place of extraction of natural resources" The treaty in its definition of PE refers to the business of the enterprise. It does not say the business of French enterprise. However, a specific reference to the French enterprise has been made in the whole treaty, wherever necessary. Under such circumstances the term enterprise used in the definition clause shall also be construed to mean the enterprise of a third State, namely Panama in this case. Thus, it can be said that the Panamian employers constitutes a PE in India for the limited purpose of Article XIV(2)( c ). 18. In view of the overall analysis and the fact that taxability of salary income having been upheld by the jurisdictional High Court and the Tribunal also taken a view against the assessee, we find no merit in the ground raised by the learned counsel of the assessee. The same stands rejected." 13. Subsequently, the same issues were raised by the assessees before the Tribunal Bench E in relation to assessment year 1998-99 but the appeals of the assessees for assessment year 1998-99 were rejected by the Bench in its order dated 29-10-2004 afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses were to be allowed to permanent enterprises of the basis of reasonable allocation and not on the basis of provisions of Income-tax Act in India. In the case of the assessees, the employer SFDI had been assessed under the provisions of Income-tax Act and not under any AADT. That showed SFDI would not be treated to be a permanent enterprise for the purpose of requirement of sub-clause ( c ) of clause 2 of Article XIV. SFDI was assessed under the provisions of section 44BB which was an artificial method of computation of income chargeable to tax which did not have relationship between actual receipts and expenditure of an assessee. In the normal course, an assessee could incur loss also but under section 44BB an assessee was always to be assessed at profit. 15. The ld. counsel for the assessees referred to Article 15(2) of OECD Model Tax Convention. He pointed out that in AADT with various countries, India had not exercised the option of laying down that the employer should be a resident of the first mentioned State. In other words, while it was possible to put beyond any doubt that remuneration paid by an employer not resident in either Contracting State shall be chargeable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted the ld. DR to examine whether the provisions of AADT between India and various other countries were pari materia to AADT with France insofar as the question being considered by us is concerned. During the course of hearing before us, the ld. DR pointed out that in 5 appeals, the assessees had not disputed non-application of AADT. Moreover, in 8 cases, the assessees had not raised additional ground. The ld. DR therefore, argued that this issue did not survive in relation to ITA Nos. 2157, 2163, 2165, 2194, 2195, 2197, 2198, and 2201/Del./01. 19. As regards to the applicability of the provisions of AADT, the ld. DR furnished relevant provisions of AADT with 7 countries involved. He furnished copies of Article 15 of AADT with Canada; Article 16 of AADT with France; Article 15 of AADT with Netherlands; Article 16 of AADT with USA; Article 16 of AADT with Denmark; Article 15 of AADT with Australia and Article 16 of AADT with UK. The ld. DR pointed out that the relevant provisions could be placed in the following three categories : "Category-I [France/Canada/Netherlands/Denmark/USA] ( c )the remuneration is not borne by a permanent establishment or a fixed base (or a trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t borne by a permanent establishment which he has in that State. The phrase "borne by" must be interpreted in the light of the underlying purpose of sub-paragraph ( c ) of the Article, which is to ensure that the exception provided for in paragraph 2 does not apply to remuneration that is deductible, having regard to the principles of Article 7, in computing the profits of a permanent establishment situated in the State in which the employment is exercised. In this regard, it must be noted that the fact that the employer has, or has not, actually deducted the remuneration in computing the profits attributable to the permanent establishment is not necessarily conclusive since the proper test is whether the remuneration would be allowed as a deduction for tax purpose; that test would be met, for instance, even if no amount were actually deducted as a result of the permanent establishment being exempt from tax in the source country or of the employer simply deciding not to claim a deduction to which he was entitled." The ld. DR therefore, argued that there was no force in the contention of the assessees that remuneration paid by SFDI was not allowed as deduction on account of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any conflict between the provisions of the Act and treaty, Article of the treaty had to be given effect to. In that respect, the ld. counsel for the assessees referred to the judgment of Hon ble Supreme Court in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 1 . In that judgment, the Hon ble Supreme Court stated at page 753 that a holistic view was required to be taken and both letter and spirit of the provisions was required to be considered. 27. We have carefully considered the rival submissions. We see considerable force in the submissions advanced by the ld, DR that substantially all the arguments raised before us have been considered in the earlier decision of the Tribunal. The assessees referred to the provisions of AADT and ITAT in the earlier orders for assessment year 1988-89 applied its mind to the question as to whether on account of assessment under section 44BB, it could be said that remuneration paid to the assessees had not been allowed as deduction while computing income chargeable to tax of the employer in India. Thereafter, the assessees for the assessment year 1991-92 relied upon various judgments which have once again been argued ..... X X X X Extracts X X X X X X X X Extracts X X X X
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