9911796707
TMI Blog1997 (10) TMI 398X X X X Extracts X X X X X X X X Extracts X X X X ..... et, Wilmington, Delaware 19801, United States of America. During the previous year ending on March 31, 1991, BRI had entered into a contract with HHI in relation to the installation of the 12 SHG gas pipeline between the B121 platform and the SHG platform offshore India by mobilising the eight point mooring vessel Subtec 1 and the test support vessel Captain BO . It was completed in 39 days from the date of commencement, i.e., from November 30, 1996 to January 7, 1997. An agreement for Avoidance of Double Taxation exists between India and the United States of America (hereinafter called as DTAA ). It is contended by the applicant in its statement containing interpretation of law and facts that where there is such an agreement, the provisions of the DTAA will prevail over those contained in the domestic laws of both the countries, if the provisions of the DTAA are more favourable to the assessee. In this connection, it has relied on a judgment of the Andhra Pradesh High Court in CIT v. Visakhapatnam Port Trust [1983] 144 ITR 146. Reliance has also been placed on section 90(2) of the Income-tax Act, 1961, inserted by the Finance (No. 2) Act, 1991, which reads as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following question : The taxability [in terms of article 7 read with article 5 of the Agreement for Avoidance of Double Taxation ( DTA ) concluded between India and the United States of America which came into effect from April 1, 1991] of revenues earned by Brown and Root Inc., a tax resident of the United States of America, from its contract with Hyundai Heavy Industries Co. Limited, a company incorporated and existing under the laws of the Republic of Korea. The Department, on the other hand, in its response addressed to this authority dated September 21, 1997, contends that BRI had executed only a job work, the project being that of MDL and that BRI under sub-contract with HHI had performed only a part of the installation work on SHG pipeline project of MDL. Therefore, according to the Department, BRI is not covered under article 5(2)(k) but under articles 5(2)(a) and 5(2)(f). Under these provisions, no time limit is prescribed for existence of permanent establishment. It is further contended that the sub-contract was managed and conducted by BRI from vessels Subtec 1 and Captain BO at seabed within the territory of India which would constitute permanent estab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny 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 if : (i) activities of that nature continue within that State for a period or periods aggregating more than 90 days within any twelve-months 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)). 3. Notwithstanding the preceding provisions of this article, the term permanent establishment shall be deemed not to include any one or more of the following : (a) the use of facilities solely for the purpose of storage, display, or occasional delivery of goods or merchandise belonging to the enterprise ; (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or occasional delivery ; (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise; (d) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other. Article 7-Business profits : 1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to, (a) that permanent establishment ; (b) sales in the other State of goods or merchandise of the same or similar kind as those sold through that permanent establishment ; or (c) other business activities carried on in the other State of the same or similar kind as those effected through that permanent establishment. 2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er rights, or by way of commission or other charges for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the head office of the enterprise or any of its other offices. 4. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise. 5. For the purposes of this Convention, the profits to be attributed to the permanent establishment as provided in paragraph 1(a) of this article shall include only the profits derived from the assets and activities of the permanent establishment and shall be determined by the same method year by year unless there is good and sufficient reason to the contrary. 6. Where profits include items of income which are dealt with separately in other articles of the Convention, then the provisions of those articles shall not be affected by the provisions of this article. 7. For the purposes of the Convention, the term business profits means income derived from any trade or business including income from the furnishing of services other than included service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the DTA. Shri Braj Lal, Additional Commissioner of Income-tax, Special Range, Dehradun, arguing on behalf of the Department asserted that the vessels were not used only for transportation of personnel as contended by the applicant s counsel but were used for radio and communication, sending telex and fax, etc., and as such were fit to be used as office premises and for the purpose of management of the work. It was pointed out by Shri Braj Lal that the sub-contract was signed on behalf of the applicant by the manager (India) who was receiving instructions at the vessels from BRI to function as per their advice and such vessels were being used as workshop/office premises for purposes of management of their part of the project. Shri Braj Lal also referred to the definition of the expression site in article 1.7 of the agreement for performance of contract works and said the applicant had some site from where it could supervise the work. Some other technical issues were also raised by Shri Braj Lal, namely, failure to furnish the identity of the company, failure to furnish the balance-sheet to indicate whether it was capable of executing the contract, etc. He even suggested t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Since the activity falls short of 120 days, the applicant could not be said to have a permanent establishment in India. The element of permanence in relation to an establishment, if any, would be attracted under article 5(2)(k) only if the installation project continues for a period of more than 120 days and that condition is not satisfied here. It is not disputed that earnings from the work performed by BRI constitute business profits. However, in the absence of a permanent establishment, article 7 of the DTAA would not be attracted. As such, there is no tax liability on BRI for the business profits earned by it. In the circumstances, the ruling of the authority in the Singapore case [1997] 228 ITR 55 (AAR), referred to earlier is equally applicable in the facts of the present case. In the light of the above discussion, the Authority pronounces the following ruling on the question raised in the application before it : The revenue earned by the applicant from the contracts with Hyundai Heavy Industries Co. Ltd., Ulsan, Korea, and performed offshore India, during the previous year ended on March 31, 1997, will not be liable to tax in India, as it had no permanent establishmen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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