9911796707
TMI Blog2019 (4) TMI 1288X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfied. Assessee placed heavy reliance on the order passed by Coordinate bench in its own case for assessment year 2007-08. We very carefully perused the same to follow the view taken therein, however we fail to do so in view of the fact that existence of a fixed place PE has been decided in that case holding that equipment cannot be held as fixed place of business. This observation of the Coordinate bench in assessee s own case is not in accordance with decision of Hon ble Supreme Court in case of Formula One World Championship Ltd vs CIT (International Taxation) [ 2017 (4) TMI 1109 - SUPREME COURT OF INDIA] We therefore, hold that assessee has PE in the form of equipment as fixed place of business in India as per Article 5(1) of India-UAE Treaty and income earned by assessee from contracts are taxable in India. Addition made by AO towards offshore supplies as chargeable to tax in India - deduction u/s 44BB - HELD THAT:- We have already held here in above that assessee has PE in India, offshore supplies are to be directly attributable to activities of PE in India through business connection in India in terms of section 9 (1) (i) of the Act. The alternate plea raised by assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding that ULO has adopted completely non-cooperative approach. 3. Ground 3 Based on the facts and circumstances of the case, the learned Assessing Officer erred in law and in fact, in holding that the appellant has a fixed place of business in India, which constitutes its P.E. in India. 4. Ground 4 4.1. Based on the facts and circumstances of the case, the learned Assessing Officer erred in law and in fact, in holding that the offshore supplies made by assessee outside India are chargeable to tax in India. 4.2. Without prejudice to above, based on the facts and circumstances of the case, the learned Assessing Officer erred in law and in fact, in making arbitrary estimate of taxable income at 10 per cent of offshore supplies. 4.3. Without prejudice to above, the arbitrary estimate of taxable income at 10 per cent of gross revenues made by the Ld.AO is unreasonable, excessive and ought to be reduced substantially. 5. Ground 5 5.1. Without prejudice to above, based on the facts and circumstances of the case, the learned Assessing Officer erred in law and in fact, in making arbitrary estimate of taxable income at 10 per cent in case of services rendered in India. 5.2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant are not eligible for deduction while computing the income of the appellant. 2.3. Without prejudice to the above, based on the facts and circumstances of the case, the learned Assessing Officer erred in law and in fact, in making arbitrary estimate of taxable income at 10 percent of offshore supplies. 2.4. Without Prejudice to the above, the arbitrary estimate of taxable income at 10 percent of offshore supplies made by the learned Assessing Officer is unreasonable, excessive and ought to be reduced substantially. 3. Ground 3 3.1. Based on the facts and circumstances of the case, the learned Assessing Officer erred in law and in fact, in making arbitrary estimate of taxable income at 10 percent in respect of services rendered in India. 3.2. Without Prejudice to the above, the arbitrary estimate of taxable income at 10 percent in respect of services rendered in India made by the learned Assessing Officer is unreasonable, excessive and ought to be reduced substantially. 3.3. Without prejudice to the above ground, the learned Assessing Officer erred in not taxing income from services rendered in India as per the provisions of section 44BB of the Act. 4. Groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the above, the arbitrary estimate of taxable income at 10 percent in respect of services rendered in India made by the learned Assessing Officer is unreasonable, excessive and ought to be reduced substantially. 3.3. Without prejudice to the above ground, the learned Assessing Officer erred in not taxing income from services rendered in India as per the provisions of section 44BB of the Act. 4. Ground 4 Based on the facts and circumstances of the case, the learned Assessing Officer erred in taxing interest income from income-tax refund of ₹ 146,570. 5. Ground 5 Based on the facts and circumstances of the case, the learned Assessing Officer erred in initiating penalty proceedings under section 271 (1)(c) of the Act for concealing the particulars of income by not disclosing the true receipts from supplies and by furnishing inaccurate particulars of income. 6. Ground 6 Based on the facts and circumstances of the case, the learned Assessing Officer erred in initiating penalty proceedings under section 271B of the Act Each of the above grounds is without prejudice to one another. The Appellant craves leave to add, alter, vary, omit, substitute or amend the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f income by not disclosing the true receipts from supplies and by furnishing inaccurate particulars of income. 5. Ground 5 Based on the facts and circumstances of the case, the learned Assessing Officer erred in initiating penalty proceedings under section 271B of the Act. Each of the above grounds is without prejudice to one another. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at the time of hearing of the appeal, so as to enable the Honorable Members to decide this appeal according to law. ITA 317/Del/16 AY: 2012-13 Based on the facts and circumstances of the case, ULO Systems LLC (hereinafter referred to as 'the Appellant') respectfully craves to prefer an appeal against the assessment order issued by the Deputy Commissioner of Income-tax, (International Taxation), Circle II, Dehradun (hereinafter referred to as the 'Assessing Officer') under section 143(3) read with section 144C (13) of the Income-tax Act, 1961 ('the Act') on the following grounds: On the facts and circumstances of the case and in law, the Ld.AO, as per the directions of DRP has: 1. Ground 1 : General ground erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income. 9. Ground 9: initiation of penalty proceedings u/s 271B of the Act erred in initiating penalty proceedings under section 271 B of the Act without appreciating that the appellant is not required to maintain books of accounts in India/get the accounts audited. The above grounds is without prejudice to one another. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at the time of hearing of the appeal, so as to enable the Honorable Members to decide this appeal according to law." 2. Brief facts of the case are as under: Assessee is a company incorporated in UAE and is engaged in business of undertaking grouting work for companies in the oil and gas industry. It has been submitted that assessee is carrying on grouting services in which a layer of cement is laid on underwater structure. Assessee has also made some supplies from outside India to Indian companies, the income arising from these activities, has been claimed by assessee as non-taxable in India. Ld.Counsel submitted that similar activities are carried on by assessee for all assessment years under consideration. The position has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s squarely covered by this order. Ld.Counsel submitted that all contentions raised by Ld. CIT DR in written submissions are identical and have been considered by this Tribunal in that order. 3.2. Ld.Counsel submits that assessee do not have fixed place of PE in India available for its disposal for carrying on business in India and does not constitute a PE under Article 5 (1) of India UAE DTAA. He also submitted that, assessee do not have office/project office in India for executing contracts and accordingly does not have a PE in India as per provisions of Article 5 (2) (a) to (g) of India UAE DTAA. 3.3. By placing reliance on observation by this Tribunal in assessee's own case for A.Y. 2007-08, Ld.Counsel submitted that activities of assessee falls under 'Construction' in Article 5 (2) (h) of the treaty, and therefore each construction or assembly project should continue for a period of more than 9 months in India in order to constitute a Construction PE. He submitted that, as activities carried on by assessee in contracts involve installation/construction activities, and since none of the projects have continued for more than 9 months as per Article 5 (2) (h) of treaty, assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to support handover of contract when work is being completed. It has been submitted that whenever there is a demobilisation of equipment one phase of project ends, and personnel along with equipment are demobilised to another site. He submitted that action of grouting took place in phases and no books of accounts are maintained by assessee. He thus submitted that continuance of project in such phased manner constitutes PE in terms of Article 5 (2) of India UAE DTAA, and therefore amounts to PE in terms of Article 5 (1) of DTAA. 4.2. Ld. CIT DR raised following issues in respect of contracts placed in paper book: "4. No evidence to support or determine the handover of the contract. Whenever there is demobilization of equipment, one phase of the project ends and the personnel/equipment are demobilized. Last demobilization of equipment could be considered as handover of the contract. [p.84] Grouting operation is carried out in phases, [p.85] 5. No books of accounts maintained, [p.85] 6. Details of Daily Report submitted only in respect of BG [p.124-127 & 131-134] &Dolphin. 7. Two agreements with the same party i.e. Dolphin for the same project on 1st March & 30th March 2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under Article 5 of the treaty, situated in India. 5.3. The issue that arises in all these appeals filed by assessee is, whether there is a PE in India from grouting activities carried on by assessee and alternatively, applicability of section 44 BB of the Act, to the income earned by assessee from grouting activities. Assessee has also earned receipts in connection with offshore supplies made to Indian customers and attribution of such income provided existence of PE is established. 5.4. On perusal of order passed by this Tribunal in assessee's own case for assessment year 2007-08 (supra), it is observed that existence of equipment PE alleged by Revenue has been rejected by observing as under: "12. The DRP was of the opinion that the equipment of the assessee was in India for at least 264 days on which work for execution of construction was carried on. Thus, the assessee has equipment PE in India. This finding of the DRP finds no place in India UAE DTAA and the concept 'Equipment PE" in India is no where mentioned. The DRP further observed that even movables placed of business may constitute a PE even if they are temporary in location but permanent in time. A place of business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection of the Ld. DR was that the assessee indulged in ongoing projects and, therefore, it cannot be said that the state is less than 9 months. We are of the opinion that the establishment of PE in India is in respect of each assessment year only. Moreover there is no bar in carrying on the activities year after year. The determination of existence of PE in India is to be made by reference to provision in DTAA. In our considered opinion the Ld. DR was trying to set up a new case which is not permissible by the decision of the special bench of the tribunal in case of Mahindra and Mahindra vs DCIT (2009) 313 ITR (80) 263. The Ld. DR also contended that the matter should be sent back to the assessing officer for the determination of the period of stay in India. 20. In our considered opinion, multiple opportunities are not permissible to any authority to experiment in setting up case as held by the Hon'ble Gujarat High Court in the case of Rajesh Babubhai the Damania 251 ITR 541. Considering the facts of the case in totality, in the light of India UAE DTAA, we are of the considered opinion that there is no PE in India for the year under consideration. First grievances accordingly, al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnection therewith, but only where such site, project or activity continues for a period of more than 9 months;" Article 5(2) uses the word 'include', which means, only the places specified therein are to be treated as PE, the list of such PEs is not exhaustive. According to Klaus Vogel in his book on Double Taxation Conventions, A Commentary to OECD-UN and US Model Convention for Avoidance of Double Taxation on Income and Capital, at page 306 in para 73 (b) defines "building site or construction or installation project" as; "Building site or construction project includes the construction of buildings, Sewer systems, bridges or canals, excavating and dredging and laying of pipelines." 6.1. Thus, activity carried on by assessee does not fall under category of Construction project, as sub-sea activities that can be treated as 'Construction" are "laying of pipe-lines and excavating and dredging" Taking into consideration specific activity of grouting carried out by assessee for, Main Contractors in Indian territories, being pipelines and cable crossing, pipeline and cable stabilisation, Pipeline cable protection, stabilisation and protection of various subsea structure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business activity, constituted fixed place PE under Article 5 (1) of India UAE treaty for assessment years under consideration. Instead, he placed reliance upon observations of this Tribunal for assessment year 2007-08 in assessee's own case regarding applicability of Article 5 (2) (h) of treaty, and that activities carried out by assessee amounts to 'construction' and since duration test of each contract is not satisfied, as per requirement under sub clause (h) of clause 2 of Article 5, no PE could be made out. 6.5. On the basis of discussion hereinabove we have already rejected submission of Ld.Counsel. There is no dispute that, assessee's equipments as well as Personnel, were stationed on the vessel of Main Contractor, for carrying out grouting. It is also an admitted fact that equipment is the main place of business to assessee. Further, on analysis of the Clause 7.4 of agreement between assessee and Dolphin, relevant to assessment year 2008- 09, provides free of charge, food and accommodation to the personnel on-board of offshore vessel. 6.6. It cannot be denied that the 'vessel', on which equipments were placed and personnel was stationed, as fixed place of business throug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chants (Pty.) Ltd. v. Collector Tax Botswana [1967] 29 SATC 97]. Similarly, a writer's study has been held to constitute a PE [Georges Simenon v. Commissioner of Interval Revenue [1965] 44 TC (US) 20]. A stand at a trade fair, occupied regularly for three weeks a year, through which the enterprise obtained contracts for a significant part of its annual sales, has also been held to constitute a PE [Josepn Fowler v. M.N.R [1990] 90 DTC 1834]. A temporary restaurant operated in a mirror tent at a Dutch flower show for a period of seven months was held to constitute a PE1. An office, workshop and storeroom for the maintenance of aircraft, which were leased out by the enterprise, has been held to constitute a PE2. 26. On the other hand, possession of a mailing address in a state - without an office, telephone listing or bank account - has been held not to constitute a PE [Commissioner of Internal Revenue v. Consolidated Premium Iron Ores [1959] 265 F 2d 320]. The mere supply of skilled labour to work in a country did not give rise to a PE of the company supplying the labour [Tekniskil (Sendirian) Berhal v. CIT [1996] 88 Taxman 439/222 ITR 551 (AAR - Delhi)]. A drilling rig which, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to use this office for the purposes of the agreement. (iii) A Swiss company was held not to have a PE when it contracted with a German company to produce salad dressings in the name of and in accordance with the recipe of the Swiss company. No employees of the Swiss company were present at the production facility to supervise production5. The Bundestinanzhof has also held that a scene painter who was commissioned to carry out a work in France for six weeks, and given special rooms for the purpose, did not have a fixed base at those premises. (iv) The Administrative Court of Appeal of Paris has held that a German travel agency did not have a PE in France6. A travel agency in Paris had made an office available to the German company from time to time, and the manager of the German company had a flat in Paris; the Court held that the German company had no PE at its disposal in France. (v) The Brussels Court of Appeal has held that a German resident engaged in the transportation of vehicles had a PE in Belgium7. The taxpayer had an office 3m by 6m at his disposal on the premises of his principal supplier in Belgium, together with telephone and telex, where the taxpayer and four o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The term 'place' is used to define the term 'establishment'. Therefore, 'place' includes all tangible assets used for carrying on the business, but one such tangible asset can be sufficient. The characterization of such assets under private law as real property rather than personal property (in common law countries) or immovable rather than movable property (in civil law countries) is not authoritative. It is rather the context (including, above all, the terms 'fixed'/'fixe'), as well as the object and purpose of Article 5 OECD and UN MC itself, in the light of which the term 'place' needs to be interpreted. This approach, which follows from the general rules on treaty interpretation, gives a certain leeway for including movable property in the understanding of 'place' and, therefore, the assume a PE once such property has been 'fixed' to the soil. For example, a work bench in a caravan, restaurants on permanently anchored river boats, steady oil rigs, or a transformator or generator on board a former railway wagon qualify as places (and may also be 'fixed'). In contrast, purely intangible property cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he place of business as an instrument for carrying on its business unless it controls the place of business to a considerable extent. He hastens to add that there are no absolute standards for the modalities and intensity of control. Rather, the standards depend on the type of business activity at issue. According to him, 'disposal' is the power (or a certain fraction thereof) to use the place of business directly. Some of the instances given by Vogel in this behalf, of relative standards of control, are as under: "The degree of control depends on the type of business activity that the taxpayer carries on. It is therefore not necessary that the taxpayer is able to exclude others from entering or using the POB. The painter example in the OECD MC Comm. (no. 4.5 OECD MC Comm. on Article 5) (however questionable it might be with regard to the functional integration test) suggests that the type and extent of control need not exceed the level of what is required for the specific type of activity which is determined by the concrete business. By contrast, in the case of a self-employed engineer who had free access to his customer's premises to perform the services re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r his personnel. A small workshop (cf. Article 5(2)(e) OECD and UN MC) of 10 or 12 square meters can hardly be used by more than one person. The same holds true for a room where the taxpayer runs a noisy machine." 33. OECD commentary on Model Tax Convention mentions that a general definition of the term 'PE' brings out its essential characteristics, i.e. a distinct "situs", a "fixed place of business". This definition, therefore, contains the following conditions: - the existence of a "place of business", i.e. a facility such as premises or, in certain instances, machinery or equipment. - this place of business must be "fixed", i.e. it must be established at a distinct place with a certain degree of permanence; - the carrying on of the business of the enterprise through this fixed place of business. This means usually that persons who, in oneway or another, are dependent on the enterprise (personnel) conduct the business of the enterprise in the State in which the fixed place is situated. 34. The term "place of business" is explained as covering any premises, facilities or installations used for carrying on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its obligations under contracts concluded with the former company. In that case, the employee is carrying on activities related to the business of the former company and the office that is at his disposal at the headquarters of the other company will constitute a permanent establishment of his employer, provided that the office is at his disposal for a sufficiently long period of time so as to constitute a "fixed place of business" (see paragraphs 6 to 6.3) and that the activities that are performed there go beyond the activities referred to in paragraph 4 of the Article. (c) The third example is that of a road transportation enterprise which would use a delivery dock at a customer's warehouse every day for a number of years for the purpose of delivering goods purchased by that customer. In that case, the presence of the road transportation enterprise at the delivery dock would be so limited that that enterprise could not consider that place as being at its disposal so as to constitute a permanent establishment of that enterprise. (d) Fourth example is that of a painter, who, for two years, spends three days a week in the large office building of its main client. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be directly attributable to activities of PE in India through business connection in India in terms of section 9 (1) (i) of the Act. The alternate plea raised by assessee regarding applicability of special provision of section 44 BB of the Act, would be applicable for computing profit and gains in connection with business of exploration etc., of mineral oils or engaged in business of providing services or facilities in connection with or supplying plant and machinery on hire used or to be used in prospecting for or extraction or production of mineral oils. Hon'ble Supreme Court in case of ONGC Gas Corpn. Ktd., Vs.CIT reported in (2015) 59 taxmann.com 1, held as under: "13............ Viewed thus, it is the proximity of the works contemplated under an agreement, executed with a non- resident assessee or a foreign company, with mining activity or mining operations that would be crucial for the determination of the question whether the payments made under such an agreement to the non-resident assessee or the foreign company is to be assessed under Section 44BB or Section 44D of the Act. The test of pith and substance of the agreement commends to us as reasonable for acceptance. Eq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sting under simulated reservoir conditions. 13. 1514 Consultancy for optimal exploitation of hydrocarbon resources. 14. 2797 Consultancy for all aspects of Coal Bed Methane. 15. 6174 Analysis of data of wells to prepare a job design. 16. 1517 Geological study of the area and analysis of seismic information reports to design 2 dimensional seismic surveys. 17. 7226 Opinion on hydrocarbon resources and foreseeable potential. 18. 7227 Opinion on hydrocarbon resources and foreseeable potential. 19. 7230 Opinion on hydrocarbon resources and foreseeable potential. 20. 6016 Opinion on hydrocarbon resources and foreseeable potential. 21. 6008 Evaluation of ultimate resource potential and presentations outside India in connection with promotional activities for Joint Venture Exploration program. 22. 1531 Review of sub-surface well data, provide repair plan of wells and supervise repairs. 23. 733 Repair of gas turbine, gas control system and inspection of gas turbine and generator. 24. 741 Repair and inspection of turbines. 25. 737 Repair, inspection and overhauling of turbines. 26. 736 Inspection, engine perf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 4-5 for assessment year 2008-09 raised by assessee stands allowed for statistical purposes. 8. It has been submitted by both sides that facts and circumstances of case are identical and similar in all assessment years under consideration. 8.1. Accordingly Ground 3 for assessment year 2009-10, 2010- 11, 2011-12 and Ground No. 4 for assessment year 2012-13 raised by assessee stands allowed for statistical purposes. 9. Ground No.6 for assessment year 2008-09 has been raised by assessee on levying interest under section 234B of the Act. 9.1. It is observed that assessee is an overseas entity and in the appeal filed by it for the assessment years under consideration the ground has been raised to delete interest levied under section 234B of the Act. 9.2. We find force in submissions of assessee as Hon'ble Delhi High Court in case of Sedco Forex International Drilling Co. Ltd vs. DCIT, reported in (2003) 134 Taxman 109, held that, "when duty is cast on the payer to pay tax at source, on failure, no interest can be imposed on the payee-assessee." 9.3. Respectfully following the decision of Hon'ble Delhi High Court in case of Sedco Forex International Drilling Co. Ltd vs. DCIT ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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