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TMI Blog2017 (10) TMI 307X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is done by these personnel or it constitute an entrepreneurial activity which can be reckoned as PE. Thus, in our conclusion, firstly, the hiring of AHTS vessel of assessee by ONGC for its operation in India does not qualify to make vessel a place of management for the assessee in India; secondly, the Crew and Master of the vessel does not belong to the assessee as settled by the Hon'ble High Court in assessee's own case; and lastly, in any case Master and Crew of the vessel do not have power to make significant decision over the assessee, because they are under control and directive of ONGC as per the agreement discussed above. It cannot he held that assessee has some kind of.PB, because the assessee vessel cannot be reckoned as installation or structure used for exploration and exploitation of national resources as it is being done by the ONGC. The ONGC has only hired the vessel from assessee for carrying out exploration of oil and natural gases and therefore, under this clause aiso it cannot be held that the assessee's vessel/ AHTS constitute a PE in India. Thus, in our view there exists no PE of assessee in India and therefore, the revenue from ONGC cannot be taxe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellants submit that the provisions of section 44BB have no application to the facts of their case as they being a resident of Denmark, their income from ONGC is assessable as 'business profits' under Article 7 of the DTAA and in the absence of a PE, is not taxable in India. Your appellants pray that the AO be directed accordingly. 4. The CIT(A) erred in confirming the AO's action of including the reimbursement of ₹ 34,45,380 received by your appellants towards expenses incurred on supply of lube oil, etc in computing the deemed profit under section 44BB of the Act. Your appellants submit that the amount being in the nature of reimbursement of actual expenses incurred, does not result in income and further submit that a computation provision like section 44BB will apply only if the income is held to be chargeable to tax under the charging provision. Your appellants pray that in any event, the AO be directed to exclude the amount of ₹ 34,45,380 in determining their income, if any. 3. The brief facts apropos the aforesaid issues are that both the assessees, i.e. 'Maersk A/s' and 'Maersk Company Ltd.' are non resident companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such space must carry out its business wholly or partly through it, which according to him has been done from the vessel. He also referred to commentaries of Phillip Baker, wherein the author opines that, where enterprise lets out or leases of facilities, equipments, and tangible properties and also supplies the personnel to operate the equipment with wider responsibilities, then the activities of such enterprise does constitute a PE. He held that in the present case also, AHTS has been provided by the assessee on hire to ONGC along with its personnel and it is also claiming certain expenditure for repairs etc. for vessel, therefore, it can be easily held that the assessee is having PE within the scope of Article 5 of DTAA. Accordingly, the revenue earned by the assessee from such hire charges from ONGC is taxable in India and income has to be computed as deemed profit @ 10% in accordance with the section 44BB of the Income Tax Act. He computed the income of the assessee in the following manner:- Hire charges for charter hire of (Rs.) Supply vessel: 9,15,81,925/- Add: Reimbursement: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the appellant have been carried out within its premises. Thus, under Article 7 of the DTAA, the income, if any, received in the form of hire charges, is not assessable to tax and the provisions of section 44BB of the Act have no application in the case of the appellant', On the other hand, the Assessing officer has strongly relied on the Commentary on UN Model, which provides that place of management may also exist where no premises are available or required for carrying on of business and it simply has a certain amount of space at its disposal. Further, it has been indicated that where the assessee lets or leases facilities, equipment, tangible properties and also supplies personnel to operate the equipments with wider responsibilities, then the activities of the assessee constitute a PE. In fact, - the OECD Commentary on UN Model has been looked into wherein it has been specified that if an enterprise of a State lets or leases facilities, equipments, buildings, intangible property to an enterprise of the other State without maintaining for such letting or leasing activity, a fixed place of business in the other State, the leased facilities, equipments, buildings etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o ensure that the vessel is available for the operation as per the direction of the charterers. Thus, the assessee despite being owner of the vessel, has been working under the direction of the ONGC. Even the crew members of the vessel were under the superintendence and control of ONGC as per the charterer operation and terms of the agreement. In support, of his contention he referred to various clauses given in clause 6.1 to 6.8 of the agreement. He submitted that not only the vessel, even the master and the crew members were carrying out the functions and duties in accordance with the charterer's directives. He also referred to warranty and indemnity clauses to show that agreement is for hire of a vessel only as against a service agreement. He drew our attention to one very important fact that the master and crew on board of the vessel given on hire to ONGC were not the employees of the assessee; rather the employees were procured from 'Rederiet A.P. Moller' (RAPN), a group company. Thus, neither the employees belong to the assessee nor they were operating under the control of the assessee, albeit they were under the control and direction of the ONGC to carry out the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of vessel and its operation cannot qualify for a 'place of management'. Finally, in support of his contention, where employees are not in the direction and control of an entity then it cannot constitute a PE under DTAA, he relied upon the following decisions:- 1. DDIT v. Dharti Dredging Infrastructural Ltd., 44 SOT 486 (Hyd ITAT) 2. DCIT v. Stock Engineer contractors BV 32 SOT 248 (Mum) He also relied upon the decision of Delhi High Court in the case of National Petroleum Construction Company v. DIT, [2016] 383 ITR 648 (Delhi), wherein it was held that all the clauses of PE as specified in sub paras of para 2 of Article 5 would be considered as PE only when there is a fixed place of PE under Article 5. 8. By way of an alternative argument, Mr. Porus Kaka, submitted that even under the domestic law, hiring of the equipment with the personnel would not constitute works contract' under section 194C and in support he relied upon the following decisions:- Jaiprakash Enterprises Ltd. v ACIT, 49 SOT 1 (Luck) wherein the lender neither had any work obligation nor any command, control and possession of machines after they were temporarily handed over t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... daily charges with crew not being employees of the appellant and operating under the control of ONGC, cannot be construed to be any place of management of the appellants. Hence, the appellant cannot have any PE due to the presence of such vessel given on hire to ONGC in India. Lastly, in his conclusion he submitted that the employees were not the employees of the Appellant/ Owner; there can be no place of management in India so as to bring it into the definition of PE under the DTAA. Further this is a moving vessel and not fixed and therefore cannot constitute a PE. The vessel is under the control of charterer, i.e. ONGC, therefore, the place of management of the Appellant /Owner cannot be said to be on board the vessel, to constitute any PE. 10. On the other hand the ld. DR, submitted that the entire spirit of the agreement as entered between the parties has to be seen and if one has to analyze closely, then it can be seen that employees are not of the ONGC but they belong to the assessee even though they may have been under the control of ONGC for carrying out of the work. Only documentary evidence will provide as to whose employees were they. On the issue of PE, he submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On hire' to mean, the duration when the vessel is deployed for charterer's operations after due clearance from all regulatory authority. Clause 1.16 describes the vessel as the AHTS of the required specification specified as per Schedule A of the Agreement and equipped with the required personnel and equipment as set out in Schedule C. Clause 6.1 provides for the obligation of the Owner (i.e., the assessee) while the vessel is in operation. It relates to supply at the cost of the owner, all equipment machinery fitted in vessel, personnel as listed in Schedule C, maintenance of vessel, work wire, Mooring lines, etc. Clause 6.2 requires the assessee to ensure efficient complement of personnel on ship, Clause 6.3 deals with personnel on ship where the details of the Crew such as all particulars / bio-data including passport, etc. is required to be submitted to the Charterer. Any change in the appointment will require prior approval of Charterer. Clause 6.4 enables the charterer to replace any member of the crew while the owner would be obliged to accept such request for replace of the crew. This means that the charterer has total control of the personn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Owner (i.e. the assessee) or their employees are not responsible for loss of cargo of the Charterer loaded upon or carried by the vessel. 12. From the aforesaid clauses specifically various sub clauses of clause 6, it can be seen that it is a purely a hire agreement for AHTS vessel for exploitation and exploration of oil and natural gas by ONGC in respect of their services performed on the AHTS. Not only the vessel but also the Master and the Crew were under the direction and control of the ONGC. It has also been brought on record before us that, now it is amply settled in the case of the assessee that Master and the Crew on board of the vessel given or hire to ONGC were not the employees of the assessee, albeit were procured from RAPM, a group company. This matter has been settled by the Tribunal in assessee's own case as referred to by the Id. Sr. counsel. The relevant observation of the Tribunal in this regard reads as under:- 11. Apropos the payment aspect, the salary paid to the expatriate sonnet was not borne by MCL. MCL was also not haying any permanent establishment in India. The Income of the expatriate personnel was assessed in. Demark. That being so, article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the place of management exists, the nature of business activities performed in the place is significant. Clearly, the performance of business activities or ownership of property does not qualify for a place of management . On the other hand, a place of management does not have to be the head office. However, the place must have power to make significant decisions. It is not sufficient that the activity has a managerial character. For example, payroll functions pertaining to construction work performed at an onsite office are not management in this respect. This is particularly relevant for enterprises engaged in hiring out of labour where payroll functions are sometimes the only activities performed by the hiring-out company in the host country. Moreover, management in this respect is more than the-day-today carrying out of instructions by the head office abroad. Thus, the main emphasis has been given a place where there must be power to make significant decisions and it has to be some kind of fixed place of management. UN Model also incorporates several provisions of Article 5 of OECD Model Convention and has incorporated commentary of OECD for explaining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of business. The vessel here in this case cannot be reckoned either as 'fixed place of business' or 'a place cf management'. We have already discussed in detail above that firstly, personnel do not belong to the assessee and secondly, in any case the personnel are under the control and directions of ONGC and qua the assessee these personnel do not have any wide responsibility in participation of the decisions of hiring, therefore, it cannot be held that the activity of the lessor/assessee is done by these personnel or it constitute an entrepreneurial activity which can be reckoned as PE. The reliance placed by the Assessing Officer and the Id. CIT (A) on the UN Model is thus not only misplaced but is based on misinterpretation of the UN commentary. Thus, in our conclusion, firstly, the hiring of AHTS vessel of assessee by ONGC for its operation in India does not qualify to make vessel a place of management for the assessee in India; secondly, the Crew and Master of the vessel does not belong to the assessee as settled by the Hon'ble High Court in assessee's own case; and lastly, in any case Master and Crew of the vessel do not have power to make significant ..... X X X X Extracts X X X X X X X X Extracts X X X X
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