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TMI Blog2018 (4) TMI 460X X X X Extracts X X X X X X X X Extracts X X X X ..... puted in accordance with provisions of section 44BB of the Income tax Act, 1961. X X X X Extracts X X X X X X X X Extracts X X X X ..... icant in respect of the contract with ONGC be computed in accordance with provisions of section 44BB of the Act. 4. In its report dated 9.2.2017 and during the course of these proceedings, with reference to Questions No. (i), (ii) and (v) the Revenue accepts that considering the nature of activities carried out by the Applicant and decision of Hon'ble Supreme Court in Oil & Natural Gas Corporation Ltd. vs CIT [2015] 376 ITR 306 (SC), the revenue from such activity would not be taxable as Fees for Technical Services within the meaning of section 9(1)(vii) of the Income Tax Act, 1961. Further, since ONGC does not use or obtain the right to use the vessel/equipment of the Applicant, receipts from ONGC would not be taxable as Royalty, both under India UAE DTAA and the provisions of the Act. It is also accepted by the Revenue that the activities of the Applicant come within the purview of the term "in connection with" exploration of mineral oils, as stipulated undersection 44BB of the Act. 4.1 As far as Questions No. (iii) and (iv) are concerned, the Revenue strongly contended that the Applicant has a permanent establishment in India in the form of the vessels, and revenue from the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the context of the various business activities, in the case of equipment, a fixed place can be found to exist even though the equipment by the nature of business may be relocated from one site to another for a single customer under one integrated contract. A movable place of business is thus treated as fixed place of business and most of the equipment is used at fixed points within a proximate area on a repetitive continuous basis for sufficient period of time as required by the business. 4.4 The Revenue has also cited the case of Fugro Engineers B.V. vs. Assistant Commissioner of Income-tax [2009] 122 TTJ 655 (Delhi), where against the argument of number of days, it was held that the vessel and the rig constituted the 'fixed place PE' within the meaning of Article-5(1) of India-Netherland DTAA. Reference in this decision was made to the Commentary on OECD Model Tax Convention, to say that there has to be a link between the place of business and a geographical point, and it is immaterial how long an enterprise operates in other Contracting State, and it does not mean that the equipment constituting the place of business has to be actually fixed to the soil. 5. The Applicant d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emove any doubts that the places listed in sub-paras (a) to (i) fall within the definition of the term 'Permanent Establishment'……………..Read in the context of the other provisions of Article 5, paragraph 2 clearly indicates that it has been used as an explanatory provision to specifically include the species of places of business that would constitute a PE of an enterprise. In this view, paragraph 1 and 2 of Article 5 of the DTAA complement each other. Thus, all classes of PEs as specified in various sub-paras of paragraph 2 of Article 5 of the DTAA would be construed as a PE subject to the essential conditions of paragraph 1 of Article 5 being met. Insofar as sub-paras (h) and (i) of paragraph 2 of Article 5 are concerned, the test of permanence as required under paragraph 1 of Article 5 is substituted by a specified minimum period of nine months. Thus, places of business as specified under sub-paras (h) and (i) of paragraph 2 of Article 5, cannot be construed as a PE of an enterprise unless they exist for a period of at least nine months." 5.2 Reliance was also placed by the Applicant on the decision of this Authority in Cal Dive Marine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al in nature………. 6.2………………… 6.3……………….. 6.4 ….…….If the opening para of Article 5 is to be read on stand-alone basis, then clause (i) of para 2 will be rendered ineffectual and perhaps otiose………Thus clause (i) of Article 5(2) ought to be treated as a provision complementary to para 1 of Article 5." 5.3 The Applicant further submitted that reliance placed by the Revenue on the decisions in the case of M/s Poompuhar Shipping Corp. Ltd. (Supra) and Fugro Engineers B.V. (Supra) is misplaced. It was submitted that decision of Delhi Tribunal in Fugro Engineers (supra) is distinguishable on facts, as the issue before Delhi Tribunal was regarding interpretation of Article 5(2)(i) of the India-Netherlands DTAA which read as follows - "an installation or structure used for the exploration of natural resources provided that the activities continue for more than 183 days". The decision of Hon'ble High Court of Madras in Poompuhar Shipping Corp. Ltd. (supra) is distinguishable as the larger issue before the Madras High Court was whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent but similarly capable and equipped vessels, under similar contracts. It was before this Authority in 2009,(AAR 815 of 2009) when it had entered into an agreement with ONGC for 2D seismic, gravity and magnetic data acquisition and on-board seismic data processing offshore India, during the field seasons 2007-08 and 2008-09 in different survey areas of Western and Eastern Indian Offshore. It took an admitted position that its services of seismic data acquisition and processing were in connection with oil and mineral exploration, and on account of which it was eligible for computing its business income u/s 44BB of the IT Act 1961, which was a special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils. The activities at that time were the same as at present, yet in that application, the Applicant had not taken the position that it did not have a PE in India, or that it was covered by any of the provisions in para 2 of Article 5 of the DTAA. This Authority had agreed with the Applicant's contention. 6.2 Coming to the issues raised before us, as far as question nos. 1 and 2are concerned, that is whether the consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te geographical area, and from which its business of survey in connection with exploration is carried out; and lastly this place is at the disposal of the Applicant. Thus, if Article 5(1) of the India UAE Treaty alone is considered, there is PE in this case. 6.3.2 The Applicant, however contends that in spite of the above it cannot be considered as having a PE since it is covered by the specific clause as contained in para (2)(i) of Article 5 of the India UAE DTAA requiring its period of operation to be more than 9 months to qualify it as a PE, and that a specific or special clause, as in Article 5(2)(i) will take precedence over a general provision as in Article 5(1). In the cases cited by it, it was finally held that in so far as sub-paras (h) and (i) of para 2 of Article 5 of the DTAA are concerned, the test of permanence as required under para 1 of Article 5 is substituted by a specific minimum period of nine months. 6.3.3 However, the applicability of the above dictum would depend on the facts of the case, as also submitted by the Applicant, that the ratio of a case must be understood having regard to the fact situation obtaining therein. In National Petroleum case, a case w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than nine months. In contrast to this, in the Applicant's case, the services of seismic surveys are conducted on the High seas through the seismic vessels which are equipped with various equipments for collection and interpretation of data, while operating in the geographical area and in connection with exploration and extraction of mineral oils. They are not carried on mainly by employees/personnel but primarily by the vessels and equipments mounted thereon and deployed in the ocean. Such are not the services contemplated under para 5(2)(i) of the India UAE DTAA. 6.3.6 If the States signing the Treaty intended to include in Article 5(2)(i) the activities in connection with exploration, exploitation or extraction of mineral oil etc., the sub para would have said so. DTAAs are not to be interpreted like laws passed by Parliament that encompass a wide range of situations, and require one to examine and debate the legislative intent, as against the literal interpretation. DTAAs are entered into between executives of two States after consciously considering the business reality specific to the two States. 6.3.7 Klaus Vogel in his Commentary on Double Taxation Conventions, Third Editi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(2)(j): "An installation or structure used for the exploration or exploitation of natural resources, but only if so used for a period of more than 120 days in any twelve month period"; India Netherlands DTAA, Article-5(2)(i): "An installation or structure used for the exploration of natural resources provided that the activities continue for more than 183 days"; and India Japan DTAA, Article-5(2)(j): "An installation or structure used for the exploration of natural resources, but only if so used for a period of more than six months", India UK DTAA, Article 5(2)(i), which mentions "An installation or structure used for the exploration or extraction of natural resources; and so on. 6.3.9 In contrast to the above provisions in different DTAAs, in the case of the India UAE DTAA, which concerns us in this case, no such mention has been made with regard to activities in connection with exploration or connected activities. It is therefore clear that as far as the services and activities of the applicant are concerned, there is no specific provision in paragraph 2 of Article 5 of the India UAE DTAA, either mentioned or intended, that could cover the services carried out by the Applicant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The answer is yes. Since we have examined and found that the activities of the Applicant are in connection with exploration of mineral oils, the special provisions of section 44BB apply, and the income of the Applicant would be computed as laid out therein. This is in line with our Ruling in AAR 815 of 2009, in the Applicant's own case, where for similar activities we had said that section 44BB would apply. 8. The questions raised in the Application are answered as under: 1. The consideration for services provided by the Applicant to ONGC will not be construed to be in the nature of 'Fees for Technical Services' under section 9(1)(vii) of the Act. 2. The consideration for services provided by the Applicant will not be construed to be in the nature of 'Royalty' under section 9(1)(vi) of the Act and/ or under Article 12 of the India UAE DTAA. 3. The Applicant has a Permanent Establishment in India under Article 5 of the India UAE DTAA, in respect of its contract with ONGC. 4. The income of the Applicant earned from its contract with ONGC would be taxable in India as business income. 5. The income derived by the Applicant in respect of the contract with ONGC will be co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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