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TMI Blog2018 (8) TMI 438X X X X Extracts X X X X X X X X Extracts X X X X ..... o get the contract. As the date of completion, the Contract provides the completion date of 1st August, 2008, whereas as per the material placed on record and also the payment schedule etc., points out that all the activities connected with the project including the receiving of the payments was before 30th September 2008 and even the completion certificate mentions 30th September 2008. Though certain formalities for final completion certificate may have exceeded one or two months but still it will not make the continuity of the activity where it has been brought on record that the last barge sailed out or was decommissioned from India on 25th September, 2008 and the entire payments were received on or before that date. Onus is heavily upon the revenue to establish that that assessee s activity had crossed the threshold period of 12 months and hence constitutes PE in India in terms of Article 5(2)(g) so as to tax the receipts in India as per Article 7. Threshold period of 12 months have not exceeded in the present case and consequently no PE can be said to have been established in Article 5(2)(g) . Accordingly, we hold that no income of the assessee on the Contract execute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... project execution started or at best 25 February 2008 when the vessels arrived in India for the purpose of execution of project. 4. On the fact and circumstances of the case and in law, the learned ADIT has erred in not granting credit of taxes withheld of ₹ 8,77,45,192. 5. On the facts and circumstances of the case and in law, the learned AD IT has erred in levying interest of ₹ 1,06,22,376 under section 234B of the IT Act despite the fact that there was no tax payable after granting credit of tax deducted at source and even otherwise, the Appellant was not liable to discharge any advance tax, since it is a non-resident whose entire income is tax deductible at source. 6. On the facts and circumstances of the case and in law, the Learned ADIT has erred in initiating penalty proceedings under section 271(1)(c) of the I.T. Act. 2. The facts in brief are that the assessee company, Bellsea Limited is a company incorporated in Cyprus and is a tax resident of Cyprus. The assessee is mainly engaged in the business of dredging and pipeline related services to oil and gas installations. During the relevant financial year, the assessee was awarded a contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the subsidiary-sea production system. Mechanical completion, testing and pre-commissioning of all subsidiary-sea system components and SSIV s - Commissioning assistance 5.3 It is also relevant to note that assessee has single point responsibility towards amongst other things the following- Project management Preparation of detailed procedures in accordance with equipment suppliers Guidelines/recommendations and obtain vendor approval for procedures. Attendance and inspection during FAT at company assigned suppliers. Vendor works. Interface with company appointed equipment vendors during engineering for providing installation inputs. Obtain all permits required to perform the work under the scope, except those provided by the principal. Mobilisation and demobilization of vessels, support equipment, materials and manpower. From the above activities, he came to the conclusion that the assessee was responsible for multifarious functions. Thus, from terms of contract and scope of work it cannot be said that role of the assessee was limited to mere rock placements in river sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vities which have been noted by the AO and also endorsed by the DRP in fact pertained to AMC and not to the assessee. This fact is clearly borne out from the contract and is also evident from the payment schedule as appearing in page 309 of the contract. Thus, the very premise on which AO has proceeded to hold that assessee is carrying out multifarious functions so as to hold that assessee s activities constitute a PE is completely divorced from the facts and material on record. The assessee s activities under the contract if at all can be said to have commenced would be the effective date on which the contract has commenced, which was 4th of January, 2008. This he pointed out is clear from clause 2 of the contract given at page 175. Even the completion date has been mentioned under the definition clause which is 1st August 2008. Thus, both the commencement and completion date has been specifically defined under the contract and therefore, there cannot be any inference to hold that the commencement had started prior to that date. He also drew our attention to the payment schedule and the break up alongwith the invoice date giving activity wise details; and pointed out that, first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vities in relation to the contract. The date of arriving of vessel/barge should not be taken as a date of commencement of the activities for the purpose of computing the duration in Article 5(2) (g), because the entire activity qua the contract has to be taken into account. In order to prove this point, he specifically drew our attention to various clauses of the contract and highlighted the points in his written submission, which for the sake of ready reference is reproduced herein below:- 1. PB page 165 point (E): (E) The Contractor has further represented to the Company that the Contractor has made itself aware of the marine conditions, technical feasibility and the rules and regulations applicable to the carrying out of and completion of the Works (as such term is defined below) and, on this basis, the Contractor has satisfied itself that it has the requisite expertise, capability, availability of manpower and infrastructure (with capacity to augment these) and is willing to carry out and complete the Works by the Completion Date (as such term is defined below) in accordance with the Contract. (Emphasis provided) 2. PB page 194: Clause-8.3. The Contractor confirms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (point 3): This requires onshore activities. c) Surveys (point 5.10): Also includes pre-installation survey. This indicates that the work was not as simple as made out to be. d) Point 7.3: Establishing onshore storage / coating / fabrication / supply bases to support construction operations. This shows onshore 'permanent' place of work. e) Point 7.5: Assessee had to Obtain all permits and Authorisations. 8. Authorizations from Regulatory Authorities: PB page 363 Section 12.1 indicates that the assessee has to obtain Authorizations from about 11 (eleven) Regulatory Authorities. This would certainly have taken immense prior work as envisaged by the AO (Para 6). 9. Compliance with Laws: PB page 364 Section 12.5.1 requires the Contractor (assessee) to make all arrangements for necessary compliance with 29 Laws. This would have certainly required deep on site involvement and study much before the effective date as envisaged by the AO (Para 6 thereof). This is apart from the various studies required to be done (PB 341- 345). 10. Onshore Office at Site / Onshore Base / Offshore Office at Site: PB pages 398 - 401 - The assessee (contractor) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taken from the 4th January, 2008 to 25/30th September, 2008, because for the reasons stated above by him. Accordingly, he concluded that here in this case the threshold period of 12 months had crossed and therefore, there is PE in terms of (5)(2)(g). 7. We have heard the rival submissions, perused the relevant finding given in the impugned orders as well as material referred to before us at the time of hearing. The assessee is a Cyprus based company which was awarded contract by another foreign entity Allseas Marine Contractors S.A, (AMC) for placement of rock in seabed for laying of gas pipelines and providing umbilical for sub structures in oil and gas field developed at Krishna Godavari Basin. The AMC was awarded a contract from the Reliance group and Niko Resources for extraction of gas and for laying of gas pipeline. In order to carry out its contract work AMC has given a contract to the assessee company for the placement of rock in the oil and gas field. The scope of work of AMC has been elaborated at page 329 of the Contract which has been noted by the AO and also incorporated by us in the foregoing paragraph 2. However, the AO has inferred that this scope of work is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endor works whenever required to ensure that the purchased equipment and items will meet all quality requirements and will be delivered to meet the project schedule. 3.3 Construction and Installation of the Temporary Facilities Contractor shall arrange and install all the temporary facilities to enable the works. All the temporary facilities shall be removed and the work site shall be restored to its original condition. Rock dumping activities include: Contractor is responsible for the transporting and placing of a maximum of 1,00,000 Te of rock materials which will be delivered FoB by Dredging Contractor at LFP jetty1 (Current scope of work is based on a 1,000,000 Te rock backfill. The optimal methodology and amount is currently reviewed.) The rock protection as per the base scope requirements will be placed between LFP and KP 17.4 3.4 Not Used 3.5 Not used 3.6 Not used 3.7 Site Restoration Upon completion of the Work, Contractor shall remove from the site all temporary work, scrap, surplus materials, construction facilities and equipment provided by Contractor, and shall remove debris and garbage. Any such material dumped into t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eflect the final completion, because there was a condition that final completion certificate would be given once various conditions have been satisfied and till the final completion certificate is issued the activity of the project has to be construed as continuing. 10. From the material placed on record, we find that prior to the entering of the contract, one of the employees of the assessee company, Mr Harry Beljaars had visited India sometime in September, 2007 for the purpose of collecting data and information necessary for tendering purpose and to bid for the contract. Before entering into contract with AMC such preparatory work like pre-survey engineering, investigation of site, etc., for tendering purpose without actually entering into the contract and installation of project cannot be held that the activity qua the installation project has started. Here one important fact to establish the threshold period prior to effective date provided in the contract, has neither been brought by the Revenue nor is borne out from the records, that the assessee has installed any kind of project office or developed a site before entering into the contract with the AMC for carrying out an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly project could be construed as a fixed place of business only when an enterprise commences its activity at the project site. An activity which may be related or incidental to the project but which is not carried out at the site in the source country would clearly not be construed as a PE as it would not comply with the essential conditions as stated in paragraph 1 of Article 5 of the DTAA. It is necessary to understand that a building site or a construction assembly project does not necessarily require an attendant office; the site or the attendant office in respect of the site/project itself would constitute a fixed place of business once an Assessee commences its work at site. Thus, for clause (h) of paragraph 2 of Article 5 to be applicable, it is essential that the work at site or the project commences - it is not relevant whether the work relates to planning or actual execution of construction works or assembly activities. Preparatory work at site such as construction of a site office, a planning office or preparing the site itself would also be counted towards the minimum duration of a PE under Article (2)(h) of DTAA. In a given case, establishment of an office or any work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instance and 27 days in another (from 27.02.2006 to 07.03.2006 and 25.04.2006 to 21.05.2006). The Assessee commenced its activities at site when the barges entered into the Indian Territory on 19.11.2006 and such activities relating to the installation, testing and commissioning of the platforms continued till 27.04.2007. Thus, the Assessee's activity at site would indisputably commence on 19.11.2006 and continue till 20.04.2007, that is, for a period of less than nine months. [ Emphasis in bold is provided by us] 12. The ratio as culled out from the aforesaid judgment is that a building site or an assembly project can only be construed at fixed place of business only when an enterprise commences its activities at the project site. Any activity which may be related or incidental but was not carried out at the site in the source country would clearly not be construed as a PE. Albeit, preparatory work at the site itself can be counted for the purpose of determining of duration of PE. However, in the present case there is no such allegation or material on record that any kind of preparatory work had started at the installation sites prior to 4th of Jan 2008. The period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end date of the installation project is without any factual material to support. His inference are based on presumptions that for carrying out such a work and to comply with the certain conditions of Contract there must have been substantive activity before the effective date; and after the date of decommissioning of the project/ demobilisation certain formalities must have been carried out. Such a contention sans any corroborative material cannot be accepted, because the onus is heavily upon the revenue to establish that that assessee s activity had crossed the threshold period of 12 months and hence constitutes PE in India in terms of Article 5(2)(g) so as to tax the receipts in India as per Article 7. 14. Thus, on the facts and material on record and in view of our reasoning given above which is in consonance and in line with the principle laid down in the Hon ble Jurisdictional High Court, we hold that threshold period of 12 months have not exceeded in the present case and consequently no PE can be said to have been established in Article 5(2)(g) . Accordingly, we hold that no income of the assessee on the Contract executed by assessee in India can be held to be taxable in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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