9911796707
TMI Blog2010 (9) TMI 741X X X X Extracts X X X X X X X X Extracts X X X X ..... office and all business activities in pursuance of the agreement and the other agreement have been managed and controlled from this office - There is no evidence to show that any business was carried on except that the address has been mentioned in the agreement - That by itself does not lead to inference of PE under these provisions whether, the period of repairs and mobilization has to be taken into account under article 5(2)(j) to decide that the assessee had a PE - It is submitted that an installation or a structure can become a PE only if it is (so) actually used for exploration or exploitation of natural resources for a period of more than 120 days - Rig was used for exploitation of mineral oil when it was positioned at the appointed place for exploitation of mineral oil. It is the admitted position that if the time is reckoned from its positioning at the appropriate place, the period is less than 120 days - it is held that the assessee did not have the PE in terms of article 5(2)(j) also Since the assessee does not have a PE in India, no business income can be computed under article 7 of the DTAA. Accordingly, it is held that the ld. CIT(A) was right in holding that interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute about the fact that the rig arrived in India on 21-11-2002 and it was ready for use in connection with the contract with M/s. Petrom SA. The fact that the rig underwent repairs amounts to only temporary interruption of the work. Article 5(2)(j) uses the words "installation or structure used for exploration". The word "used" has not been defined in the DTAA and, therefore, its meaning is to be derived from its usage under the Income-tax Act. Under the Act, the word "used" includes in its ambit the words "ready to use". Therefore, it has been held that since the rig was ready for use on 21-11-2002, it has been used since that date. Accordingly, the condition mentioned in article 5(2)(j) of the DTAA stands satisfied. Thereafter, he drew our attention to the order of the ld. CIT(A). In paragraph No. 2, it is mentioned that the Assessing Officer has considered the arguments of the assessee in detail and rejected the claim that the rig was in India for less than 120 days. Accordingly, the appeal of the assessee was dismissed on this ground. 3.1 On 19-6-2009, the ld. DR had submitted before us that article 5(2) of the DTAA needs to be considered in its entirety for deciding wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer by invoking section 93. The Revenue's right of appeal before the Tribunal should, therefore, be held to be limited only to restoring the assessment as done by the Assessing Officer and on the same basis. (e) An assessee aggrieved by an assessment of income in his hands has the right to appeal to CIT(A) and thereafter to the Tribunal. By seeking to raise an issue before the Tribunal for the first time, the right of appeal before CIT(A) provided to an assessee becomes redundant and deprives the assessee the benefit of adjudication by one of the Appellate Authority." 3.2 For this very proposition, reliance has also been placed on the decision of Special Bench of Delhi Tribunal in the case of Dy. CIT v. Allied Construction [2007] 106 TTJ 595, in which it has been mentioned at page 612 that the ld. counsel had argued that the texture of the order of the Assessing Officer cannot be altered at this stage and that we tend to agree with him in this matter. The context in which the remark has been made will be clear from the reproduction of the paragraph on page Nos. 611 and 612 of the report, which reads as under:-- "We are also of the view that in assessment year 1996-97, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FDRs were offered as security for financial facilities obtained by an assessee for the purpose of business would not change the character of the income as one from business. We are, however, faced with the fact that the Assessing Officer, in the order of assessment year 1997-98, has indirectly held interest income to be the business income. The learned CIT(A) also considered a major part of interest income to be the business income. The learned counsel had argued that the texture of the order of the Assessing Officer cannot be altered at this stage. We tend to agree with him in this matter. We, however, hold that the interest income in assessment year 1997-98 also cannot form part of the contract receipts for estimation of income by applying net profit rate and has to be separately assessed." 4. In reply, the ld. DR submitted that the repairs of the rig were carried on in the territories of India in pursuance of the agreement with Petrom SA. The assessee received consideration for such repairs. If the period under which the rig remained under repairs is taken into account, then, the rig remained in India for more than 120 days. Our attention has been drawn to paragraph No. 5 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were invalid, but yet the Tribunal which hears that appeal would have no power to disturb or to set aside the order in favour of the appellant against which the appeal has been filed. The ground would serve only as a weapon of defence against the appeal. If the respondent has not himself taken any proceedings to challenge the order in appeal, the Tribunal cannot set aside the order appealed against. That order would stand and would have full effect insofar as it is against the respondent. The Tribunal refused to allow the assessee to take up this ground under an incorrect impression of law that if the point was allowed to be urged and succeeded, the Tribunal would have not only to dismiss the appeal, but also to set aside the entire assessment. The point would have served as a weapon of defence against this appeal, but it could not be made into a weapon of attack against the order insofar as it was against the assessee." 4.2 It has been further submitted that consideration of article 5(2) as a whole of the treaty does not change the complexion of the case in as much as article 5(2)(j) has already been considered, which is part of article 5(2). The real question is whether, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal is competent to change the head of income even at the instance of the respondent when all the relevant facts are already on record and as long as both the parties are heard on that issue. In the case before us, it has been the alternate contention of the learned Departmental Representative that in the event Tribunal comes to the conclusion that the amount in question is not taxable under the head income from salaries, the Tribunal may also adjudicate on the question whether or not the impugned amount be held as income from other sources. Both the parties have been heard on this aspect of the matter as also on the merits of whether or not the amount in question could indeed be taxed under the head 'income from other sources'." 4.5 Reliance has also been placed on the decision of Special Bench of Delhi Tribunal in the case of DLF Universal Ltd. v. Dy. CIT [2010] 123 ITD 1. The controversy in that case was whether the transaction of transfer by the assessee to a firm was of stock-in-trade or of a capital asset. It has been mentioned that the answer to the controversy rests mainly and primarily upon determination of the nature of transaction made by the assessee as a par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, reliance has been placed on the decision of Hon'ble Supreme Court in the case of Collector, Land Acquisition v. Mst. Katiji [1987] 167 ITR 471, in which it had been held that when the consideration of substantial justice are pitted against technical considerations, the courts should normally prefer to advance the cause of substantial justice. 5. In the rejoinder, the ld. counsel for the assessee sought liberty to explain his case in regard to the additional plea of the revenue on the ground that such a plea has been taken up for the first time in the reply by the revenue. The same is granted. It is submitted that complete facts are not on record to come to a conclusion whether the assessee had PE in terms of other sub-paragraphs of paragraph 2. The Indian address has been mentioned in the agreement, but that does not mean that any business activity was carried out from this address. Further facts are required to be found whether it is merely a correspondence address or the office from which business of the assessee has been carried out wholly or partly. The attribution of income to this office may lead to enhancement of income, which is not permitted in view of the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in remanding the case is not strictly justified by the language of rule 27 or rule 12. Even assuming that rules 12 and 27 are not strictly applicable, we are of opinion that the Tribunal has got sufficient power under section 33(4) of the Act to entertain the argument of the department with regard to the application of paragraph 2 of the Taxation Laws Order and remand the case to the Income-tax Officer in the manner it has done. It is necessary to state that rules 12 and 27 are not exhaustive of the powers of the Appellate Tribunal. The rules are merely procedural in character and do not, in any way, circumscribe or control the power of the Tribunal under section 33(4) of the Act. We are accordingly of the opinion that the Tribunal had jurisdiction to entertain the argument of the department in this case and to direct the Income-tax Officer to find whether any depreciation was actually allowed under the Industrial Tax Rules and whether such depreciation should be taken into consideration for the purpose of computing the written down value." 5.1 Reliance has also been placed on the decision of Hon'ble Supreme Court in the case of Mcorp Global (P.) Ltd. v. CIT [2009] 309 ITR 434, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed. The above referred activities include, but are not necessarily limited to, mobilization and demobilization, arranging customs clearances, work permits, local personnel, local transport, food, accommodation, medical first-aid facility and adequate insurance coverage. 6.4 Article 4 deals with the equipments. It is mentioned that the assessee shall, between start date and stop date, use the equipments exclusively for the work. It is further mentioned that the assessee shall, unless otherwise agreed in writing, keep its equipments including sufficient spare-parts for the maintenance, repairs and replacement of defective parts thereof at all time at the well site or the storage facility provided by Petrom SA. It is also mentioned that the assessee's equipments shall be in good working condition, in accordance with petroleum industry standards, suitable for the purpose for which it was designed, of proven reliability and shall be fit in every respect at all times to ensure the continuity of normal and safe operations in accordance with the terms and conditions of this agreement. Defective equipment used up prematurely or damaged or lost shall be, forthwith repaired or replaced by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a sales outlet; (j) an installation or structure used for the exploration or exploitation of natural resources, but only if so used for a period of more than 120 days in any twelve month period; (k) a building site or construction, installation or assembly project or supervisory activities in connection therewith, where such site, project or activities (together with other such sites, projects or activities, if any) continue for a period of more than 120 days in any twelve-month period; (l) the furnishing of services, other than included services as defined in Article 12 (Royalties and Fees for included services), within a Contracting State by an enterprise through employees or other personnel, but only : (i) activities of that nature continue within that State for a period or periods aggregating more than 90 days within any twelve-month period; or (ii) the services are performed within that State for a related enterprise [within the meaning of paragraph 1 of Article 9 (Associated Enterprises)]." 7.1 In the course of hearing before us, the ld. counsel also filed extracts from the OECD commentary on article 5. Paragraph Nos. 11, 12, 36 and 37 were emphasized by him, which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equirements laid down therefore in the definition of the term. This also includes that the facility must have started to operate for the purpose for which it was designed. However, preparatory and auxiliary activities already count towards such operations by the permanent establishment (Schieber, P.II, Auslandsbetriebstatten, supra m. No. 1, at 8). 37. The same principles apply when determining the point of time at which a permanent establishment ceases to exist. If the enterprise ends its business activities for good, its permanent establishment will also cease to exist. The same applies if the business activities ceased to be performed by or through the fixed place of business or if the fixed place of business is transferred to a third party or, furthermore, if it is let or leased, provided in the latter case that the enterprise restricts itself to, and refrains from exercising any other business activity beyond, such letting or leasing (paras 8 and 10 MC Comm.Art. 5, see supra m. Nos. 16; BFH BstBI, III 324, 325 (1965)). Regarding subsequent income, including such of an already dissolved permanent establishment, see, however, infra Pre Arts. 6 to 22, at m. No. 6." 7.2 On the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one does not seem to be based on sound footing. In the case of DLF Universal Ltd. (supra) the Special Bench of Delhi Tribunal changed the head of income from business income to capital gains on the additional plea taken by the revenue. Thus, this case is similar in nature as the case of Sumit Bhattacharya (supra). 8.1 The decision in the case of Slocum Investment (P.) Ltd. (supra) is somewhat in contradiction with the decision in the case of Sumit Bhattacharya (supra) and DLF Universal Ltd.'s case (supra). The decision of the Apex Court in the case of Hukum Chand Mills Ltd. (supra) clearly lays down that the Tribunal has all the powers except that of enhancing the income. The only limitation on its power to rest its decision on any other ground is that the aggrieved party should be granted an adequate opportu-nity of being heard. In fact, the Hon'ble Court has gone to the extent of saying that the rules are merely procedural in character and they do not circumscribe and control the powers of the Tribunal. It has been held that the Tribunal has jurisdiction to entertain the argument of the department and even power to direct the Assessing Officer to make further enquiries. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidence that the activities of the rig were managed from this office. There is also no evidence to show as to whether it was only an address given in the agreement for correspondence with Saipem SA or an office from which business activities were carried on. In this connection, our attention has been drawn towards paragraph numbers 11, 12, 36 and 37 of the OECD commentary. According to paragraph No. 11, activities to prepare the fixed place for conducting business is to be excluded. According to paragraph 12, various illustrations given in paragraph 5(2) have to be seen in the background of general definition given in paragraph 1. This means that it is to be examined whether the business of the assessee was partly or wholly carried on from the place of management or the office. Paragraph 36 excludes preparatory and auxiliary activities from the main activity of carrying on the business. The fixed place of business or the PE ceases to exist so when the business carried on therefrom comes to an end. Thus, the nature of activities carried out from Mumbai office has to be examined before coming to the conclusion that this office constitutes permanent establishment in terms of paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion are not the activities for exploration or exploitation of natural resources, but are activities in the nature of preliminary or auxiliary activities to prepare the rig for actual user. The revenue earned from these activities can be brought to tax in India only if the assessee had a PE other than the PE envisaged under the aforesaid provision. 10.2 We have considered this matter also. We have reproduced the provision contained in paragraph No. 7 of the DTAA. The installation or structure used for the exploration or exploitation of natural resources may constitute the PE. The attendant condition is that it must have been so used for a period of 120 days in any twelve-months period. The words "so used" clearly show that the installation or the structure should have been used for exploration or exploitation of natural resources for it to constitute a PE provided that it is used for either of activities for a period of more than 120 days for any twelve-months period. In other words, the rig should have been used for exploration or exploitation of natural resources, i.e., the mineral oil for more than 120 days. The rig was not used for exploration or exploitation of the mineral oi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of National Thermal Power Co. Ltd. (supra). On the other hand, the ld. counsel opposed the admission of the ground on account of latches of about four years, change in complexion of the case, finding of new facts required for determination of the issue, and enhancement of the liability of the assessee. All these matters have been discussed in ITA No. 389(Delhi)/2005 (supra), where the revenue was a defendant. It has been held that the revenue can raise such a plea provided that no new fact is brought on record. Since the ld. DR has expressly stated that no new fact is to be brought on record, and no application for admission of new facts had been filed before us, this ground is admitted. 15. Insofar as ground No. 1 and the additional ground are concerned, the submissions of the ld. DR and the ld. counsel for the assessee are same as in ITA No. 389 (Delhi)/2005 (supra). The ld. DR also wanted to bring on record the positioning of the rig prior to its mobilization to the appropriate place for exploitation of mineral oil, which is not taken on record in absence of appropriate application in this behalf as well as the expressed representation made by her that no new fact is requ ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
