9911796707
TMI Blog1996 (4) TMI 491X X X X Extracts X X X X X X X X Extracts X X X X ..... on, firm or company in or in connection with any business carried on by them." On September 8, 1993, the applicant, Tekniskil (Sendirian) Berhard (hereinafter referred to as "TSB") entered into a contract with Hyundai Heavy Industries Co. Ltd. (hereinafter referred to as "HHI"), having its registered office in Korea. The agreement recites that HHI had been awarded certain contracts in the Neelam Process Complex and NQP Process Complex in the territory of Bombay High by the Oil and Natural Gas Commission of India. It had to execute these projects involving offshore installation works from the end of September, 1993. For carrying out the above work, HHI needed the services of skilled labour and requested TSB to supply the skilled labour necessary to carry out the above works. Under the agreement, TSB had to supply in time necessary labour force duly qualified to carry out the projects in question. Under the schedule to the contract TSB had to provide 56 welders, 24 riggers, 4 winch operators, 6 barge oilers, 6 mechanics and 4 electricians (in all 100) and HHI was to pay for these workmen, wages at the rates mentioned in the Schedule. The work of the labourers had to be executed on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income- tax, however, by a letter dated April 10, 1995, dismissed the application as misconceived. It is in these circumstances that TSB has made this application on November 22, 1995, to the authority seeking its ruling on the following questions : " (a) Whether based on the stated facts of the case, the amounts received by the applicant outside India are taxable in India ? (b) Whether based on the stated facts of the case, the nature of activities performed by the applicant in India, constitute a permanent establishment (PE) in India as per the provisions of article 7 of the Double Tax Avoidance Agreement (DTAA) between India and Malaysia ?" It may perhaps be stated at the very outset that the order passed under section 195(2) by the Deputy Commissioner of Income-tax, Bombay, on December 23, 1993, was based on the provisions of section 44BB of the Act, the relevant portion of which reads thus : " 44BB. Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils. _ (1) Notwithstanding anything to the contrary contained in sections 28 to 41 and sections 43 and 43A, in the case of an assessee, being a non-re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head 'Salaries'." On the strength of these two provisions, the case of the Department appears to be that the entire amount of fees received by TSB from HHI would be chargeable under section 9(1)(vii) as income accruing or arising in India and that in any event even assuming that the applicant is engaged in a business, the profits and gains of such business chargeable to tax under the Act under the head "Profits and gains of business or profession" would be ten per cent. of the aggregate amounts specified in sub-section (2) of section 44BB. On behalf of the applicant, however, a complete exemption of the payment received from HHI is claimed on the basis of the provisions of the Double Taxation Avoidance Agreement between India and Malaysia (DTAA) which was entered into with retrospective effect from April 1, 1973, though the agreement was signed only on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cting States shall be deemed to have a permanent establishment in the other Contracting State, if : (a) it carries on supervisory activities in that other Contracting State for more than six months in connection with a construction, installation or assembly project which is being undertaken in that other Contracting State ; (b) it carries on a business which consists of providing the services of public entertainers (such as stage, motion picture, radio or television artistes and musicians) or athletes in that other Contracting State unless the enterprise is directly or indirectly supported, wholly or substantially, from the public funds of the Government of the firstmentioned Contracting State in connection with the provision of such services. . . ." Based on the above provisions, the argument addressed on behalf of the applicant is that the fees derived by it from HHI arise out of a business in the supply of skilled labour carried on by it. The taxability of this kind of income is governed by article 7 of the DTAA which is unequivocal that the income cannot be taxed in India unless the applicant is found to have a permanent establishment in India and the profits are attributabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat State save in two cases. The two exceptions are : (a) the profits of a business carried on through a permanent establishment in another State and attributable to such permanent establishment ; and (b) income or profits which are dealt with separately in other articles of the agreement. That apart, there can be no doubt, whatsoever that the supply of skilled labourers to other companies is in the nature of a business activity. In its application dated April 4, 1995, under section 197, the applicant has stated that it is engaged in the business of supplying skilled labour for execution of offshore projects for jacket and riser installations. The contract with HHI was entered into in the course of its business. No details of any contracts of similar nature entered into by the applicant with other parties have been furnished. Still, the very nature of the contract is such that it spells out a business. The assessee is to engage skilled labour and supplies the labourers to other companies requiring such labour. It gets paid on the basis of certain rates per unit of labour employed and, by effecting economies in the scale of wages it offers to its employees, earns a margin of profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or work to be done by such labour on barges located in Indian territory could not be considered to be an enterprise with a fixed place of business in India. The reply was that this would not be so because the applicant's job was only to despatch the labourers recruited by it to India and this involved no operations in India. The installation work done in India was that of HHI and the labourers, though recruited and paid by the applicant, were really executing the work of HHI, under its supervision and control and at the "site" provided by it. It is a pity that, though the present application was filed long after the contract itself had been completely executed, no details have been furnished by the applicant as to the modus operandi of the assessee. It, however, appears from the papers filed that all of the labourers were foreigners (possibly Malaysians) and that they were transported to the mainland of India from abroad and taken back on demobilisation at the applicant's cost. According to the applicant's counsel, TSB was not at all concerned with any operations in India except to look after the welfare of the labourers. The applicant's job was to supply labourers ..... X X X X Extracts X X X X X X X X Extracts X X X X
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