9911796707
TMI Blog1996 (4) TMI 491X X X X Extracts X X X X X X X X Extracts X X X X ..... civil, professional, clerical, manual and other staff and workers and to allocate their services to any person, firm or company requiring the same and to establish and maintain an employment agency. (a) To provide or procure the provision by others of every and any service need want or requirement of any business nature required by any person, 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 for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner of Income-tax, Dehradun, on April 4, 1995, praying for a certificate under section 197 of the Act permitting HHI to make payment to TSB without deducting any tax at source under section 195 of the Act since, in its opinion, no portion of the amounts paid by HHI to TSB under the contract would be chargeable to income-tax. The Deputy Commissioner 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India : . . . . Explanation 2. _ For the purposes of this clause, 'fees for technical services' means any consideration (including any lump sum consideration) for the rendering 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a branch ; (c) an office ; (d) a factory ; (e) a workshop ; (f) a warehouse ; (g) a mine, oil-well, quarry or other place of extraction of natural resources ; (h) a building site or construction, installation or assembly project which exists for more than six months ; (i) a farm or plantation ; (j) a place of extraction of timber or forest produce. . . . (4) An enterprise of one of the Contracting 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only in that State, unless the enterprise carries on business in the other State through a permanent establishment situated therein. To say that TSB is not carrying on a business and that income by way of technical services has not been specifically provided for by the DTAA may indeed be fatal to the case of the Department because by virtue of article 7 all the income or profits of an enterprise in a State are taxable only in that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... place of business in India within the meaning of article 5(1) of the DTAA or even any of the other types of nexus included in the definition in paragraph (2) of article 5. At first blush, it appears that the applicant can be said to have a fixed place of business in India as the labourers supplied by it to HHI work on two barges located in Indian territory. It was put to counsel for the applicant why a business of labour contract for 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agraph 4 of article 5 on the ground that the applicant is carrying on some supervisory activities in connection with the project which is undertaken in India. The authority agrees with the applicant's counsel that there are no such activities. Paragraphs 5.1, 7.2 and 9.6 of the agreement make it sufficiently clear that the entire control and supervision over the workers' execution of their work is with HHI. Article 2.4 of the agreement, no doubt, refers to the applicant supplying two experienced supervisors but they are only a higher category of the work force supplied by the applicant and the supervision done by them of the work of others is also done for and on behalf of HHI. There is no reason to hold that the provisions of article 5(4)(a) of the DTAA are attracted in the present case. Based on the stated facts of the case and in the light of the aforesaid discussion, the authority makes the following : Ruling (a) Whether based on the stated facts of the case, the amounts received by the applicant outside India are taxable in India ? No (b) Whether based on the stated facts of the case, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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