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TMI Blog2012 (2) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, part of consideration is in nature of FTS and part of consideration is in nature of royalty u/s 9(1)(vii) & (vi) of the Act and under Article 12 of DTAA In respect of contract with L&T – it is noted that services and facilities being rendered by the applicant go beyond installation and include pre-installation services, post-installation services, procurement and transportation and sub-contract is effective as of 23.04.2008 and obligations under the contract continued to exist even after the vessels left the shores of India. The applicant's plea of counting the duration of services from 3.12.2008 when the applicant's vessels were mobilized to India till 19.05.2009 when the vessels left the shores of India is untenable and unacceptable. Hence the applicant has a PE in India in terms of Article 5.5 of the DTAA and falls within the ambit of Section 44BB of the Act. The consideration received by the applicant for mobilization and demobilization is taxable in India u/s 44BB of the Act. - AAR No. 936 of 2010 - - - Dated:- 15-2-2012 - Justice P.K. Balasubramanyan, V.K. Shridhar, JJ. RULING V.K. Shridhar, Member The applicant is a Singapore Company and has a tax re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9-10 for 49 days and would not constitute a PE in terms of the DTAA. Alternatively, the applicant submits that if the benefits under the DTAA are not granted then the receipts are taxable under 44BB of the Income-tax Act, 1961 (Act). It is stated that the assessing officers issued orders to withhold tax by treating the payments under the contract with IOCL as Royalty under the Act/ Article 12 of the DTAA by grossing up, and, the payments under the contract with L T under section 44BB of the Act. 2. The applicant seeks advance ruling on the following questions:- 1. Whether on the facts and in law, can the consideration, including mobilization and demobilization revenues, for services provided by the Applicant to Indian Oil Corporation Limited ('IOCL') and to Larsen Toubro ('L T') be construed to be in the nature of 'Fees for Technical Services' ('FTS') under section 9(1) (vii) of the Act? 2. If the answer to question 1 is in affirmative, whether on the facts and in law, can the consideration, including mobilization and demobilization revenues, for services provided by the Applicant to IOCL and L T be construed to be in the nature of FTS under Article 12 of the India- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... composite contract for the activities carried out in India. 4. We may mention here that while passing an order under section 197 of the Act, the Revenue took the stand that the IOCL contract is based on barge/vessel operating in offshore construction. The applicant had supplied the vessel on the agreed rent and fell in the category of clause (iva) to Explanation 2 under section 9(1) of the Act and also under Article 12 under DTAA as royalty. Regarding the L T contract the Revenue and the applicant's authorised representative took a common stand that the receipts are taxable under section 44BB of the Act. 5. The applicant submits that the two contracts are for installation and the consideration represent business receipts. The tender and work documents of the contract with IOCL shows that the SPM installed would be discharging the crude oil. The contract with L T is a combination of construction, assembly and installation work and the nature of the contract is more of a joint venture with L T than a sub-contract. Being a construction and mining project, the consideration received is not a fee for technical services as it is covered under the exception provided in Explanatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Paradip Port and informed that the anticipated residual work is divided into 3 groups: Group 1. Installation of SPM including anchor chains, floating and subsea hoses. Group 2. Work of post trenching of 48" and 14" pipeline. Group 3. All balance works required to complete the 14" affluent pipeline. 8. The technical details of work required involving Group 1, 2 3, environmental data pertaining to Paradip, survey details of the laid PLEM and anchor chains undertaken during June '08 were enclosed. The expected time of completion of Group 1, 2 3 was stated to be 4,4 and 6 weeks, respectively, plus 2 weeks for commissioning of documentation from the date of complete mobilization of spread at project site. The IOCL desired that Group 1 and 2 work is completed in all respects and the system is commissioned before December, 2008 as these are required to commission the PHCPL project. Accordingly, it was expected the bidder should mobilize the spread to start the work by beginning of November 2008. It was emphasized that completion of work in entirety shall be the responsibility of the bidder and the bidder is to ensure that the work is completed by March 2009. Accordingly, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the mode of payment in INR and in India by crossed account payee cheque and sent to the registered office of the applicant or other office notified in his behalf or delivered to the authorised representative. The applicant has chosen to bifurcate the receipts under the above mentioned heads of income. It does not want the entire receipts to be labeled under installation. It is because only 25% of the receipts are in the nature of installation work and the rest is related to the use of the vessels to carry out the installation work. It cannot be said that it is a contract for installation alone. If during the activities of installation, income in the nature of royalty or fees for technical services or interest or of any other nature arises, then such an income has to be assessed under that head of income. Thus, what IOCL is paying is for each of the items separately, even though it is a composite contract. The Hon'ble Supreme Court in the case of Ishikawajima-Harima Heavy Industries Ltd., 288 ITR 410, relied on the fact that the consideration of each portion of the contract is separately specified and therefore it can be separated from the whole. The fact, that the contract is lump ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le describing the scope of work under the contract, the applicant has stated in para 3 to Annexure III to the application that the contract with L T is : "installation of bridge, pipelines, cable installation, riser guard and riser installation, pipeline crossings, free span connection, riser clamps installation, tie-in spool installation, J-tube (including clamps thereof) etc, etc" In preamble of the agreement it is stated that the applicant has the expertise, technical knowhow, availability of equipment and personnel. The recital in Clause 2 of the subcontract states that applicant shall provide equipment, personnel, supervision and all other things required for the performance of sub contract work which is on the basis of a back - to - back agreement between L T and ONGC. A lump sum price of US $ 72.5 million is to be paid in a nominated bank account outside India. 12. In Annexure IV to the application, while giving interpretation of law or facts with reference to Question No. 6, the applicant states that the scope of work mentioned supra are the activities carried out for ONGC in connection with extraction or production of, mineral oils in India as a part of overall const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L T and the applicant was entered into on 23.04.2008, only after due diligence by L T and ONGC. In fact, it was the submission of the counsel for the applicant that L T and the applicant will be jointly performing the contractual obligations and the relation between them is something akin to a Joint Venture. This is also evident from the responsibility matrix whereby in a number of tasks the L T will assist the applicant and vice versa. 15. We have noted that the subcontract includes within its ambit not only installation but a number of pre-installation and post-installation services including surveys to be carried out by the applicant. Appendix A to the subcontract includes the details of applicant's scope of work. Under clause 2 of Appendix A, L T would be furnishing various pre-engineering survey reports to applicant for review and comments. In fact, some of the surveys would be performed by the applicant alone. The Scope of work includes various preparatory services including services in relation to drawing, design engineering as elaborated under clause 3 of the Appendix A. Under Clause 4 of the Appendix A, the applicant has also certain responsibilities for procurement. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicant including surveys, drawing, designs and getting materials ready and transportation are preparatory in nature. The duration of performing these preparatory activities cannot be excluded while calculating the duration of provision of services or facilities under Article 5.5. Moreover, Article 5.5 is a deeming provision and its import is such that the said Article can be attracted even on provision of services simpliciter without the presence of an office building, in the Country where the services are being provided. It seems to us that even if the Applicant was not mobilizing any vessels, it would have a PE in India if it provided services or facilities in connection with the exploration, exploitation or extraction of mineral oils in India in the nature of drawing, design and the like. 18. We are of the view that the Agreement with L T falls within the ambit of Section 44BB of the Act as the same deals with a case where the assessee is "engaged in the business of providing services, or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils". The applicant has provid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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