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2016 Supreme(Del) 492
IN THE HIGH COURT OF DELHI AT NEW DELHI
S.MURALIDHAR & VIBHU BAKHRU, JJ.
NATIONAL PETROLEUM CONSTRUCTION COMPANY – Appellant
Versus
DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) - Respondent
ITA 143, 144, 533/2013 WITH ITA 795/2014
Decided On : 29.01.2016
Advocate Appeared:
Mr C.S. Aggarwal, Senior Advocate with Mr Prakash Kumar and Mr Pawan Kumar, Advocate.
Mr N.P. Sahni, Senior Standing Counsel with Mr Nitin Gulati, Advocate.
The existence of a Permanent Establishment (PE) and the attribution of income to the PE of a non-resident assessee under a Double Taxation Avoidance Agreement (DTAA).
Headnote:
Whether the Assessee had a Permanent Establishment (PE) in India during the relevant period and the attribution of income to the Assessee’s PE.
Fact of the Case:
The Assessee, a company incorporated under the laws of UAE, was engaged in fabrication of petroleum platforms, pipelines and other equipment and also undertook contracts for installation of petroleum platforms, submarine pipelines and pipeline coating at various sites. The Assessee entered into contracts with ONGC for the installation of petroleum platforms and submarine pipelines. The Assessee claimed that it did not have a PE in India and further, in any event, the income from fabrication and supply of platform was not taxable under the Act by virtue of the Double Taxation Avoidance Agreement between India and UAE (DTAA). The Revenue contended that the Assessee had a PE in India and the income from the said contract was liable to be taxed in India.
Finding of the Court:
The Court held that the Assessee did not have a PE in India during the relevant period and, therefore, no income of the Assessee from the projects in question could be attributed to the Assessee’s PE.
Issues: 1. Whether the Assessee had a fixed place of business or permanent establishment in India as defined in Article 5(2)(c) of the Double Taxation Avoidance Agreement between India and UAE. 2. Whether the Installation Permanent Establishment under Article 5(2)(h) of the Double Taxation Avoidance Agreement between India and UAE is dependent on the date of actual start of execution of the contract but had come into existence on the date of award of contract? 3. Whether the income Tax Appellate Tribunal was right in holding that Arcadia Shipping Ltd. was a dependent agent permanent establishment of the appellant in India under Article 5 of the Double Taxation Avoidance Agreement between India and UAE. 4. Whether the Income Tax Appellate Tribunal has not attributed and determined the taxable income under installation and commissioning; whether the said issue/question has remained undecided and the effect thereof. 5. Whether the order of the Income Tax Appellate Tribunal violates and is contrary to Article 7(6) of the Double Taxation Avoidance Agreement between India and UAE.
Ratio Decidendi: 1. The Court held that the Assessee’s Project Office in Mumbai was not a PE of the Assessee in India as it was only used as a communication channel and was not involved in any of the main activities required for execution of the contracts. 2. The Court held that the Assessee also cannot be stated to have a PE under Article 5(2)(h) of the DTAA as the site/project cannot be construed as a fixed place of business of the contractor and would fail one of the essential tests of paragraph 1 of Article 5 of the DTAA. 3. The Court held that ASL could not be construed as a DAPE of the Assessee in India as it was an agent of independent status to whom paragraph 5 of Article 5 of the DTAA applies. 4. The Court held that the ITAT had erroneously held that the Assessee has a PE in India and, therefore, the question of attributing any income of the Assessee to the PE does not arise. 5. The Court held that the ITAT had considered the contract and in view of the fact that the consideration for various activities such as design and engineering, material procurement, fabrication, transportation, installation and commissioning had been separately specified, the Tribunal rightly held that the consideration for the activities carried on overseas could not be attributed to the Assessee’s PE in India.
Final Decision: The Court set aside the assessment orders dated 26th October, 2010 and 18th November, 2011 for the AYs 2007-08 and 2008-09 respectively as well as the corresponding orders passed by the ITAT in the corresponding appeals.
VIBHU BAKHRU, J
1. These appeals have been filed under Section 260A of the Income Tax Act, 1961 (hereafter the ‘Act’) calling into question orders dated 5th October, 2012 and 31st January, 2013 passed by the Income Tax Appellate Tribunal (hereafter the ‘ITAT’) in ITA No. 5168/Del/2010 and ITA No. 5763/Del/2011 respectively. The said appeals were filed by the Assessee assailing the assessment orders dated 26th October, 2010 and 18th November, 2011 for the assessment years (AY) 2007-08 & 2008-09 respectively. Whilst ITA No. 143/2013 and 144/2013 have been preferred by the Assessee, ITA 795/2014 and 533/2013 have been preferred by the Revenue.
2. The controversy involved in the present appeals principally relates to the taxability of income earned by the Assessee in respect of a contract entered into by it with ONGC Limited, a public sector enterprise (hereafter ‘ONGC’).The aforesaid contract entailed designing, engineering, procurement, fabrication of fully loaded offshore platform and its installation, testing and commissioning at an offshore facility of ONGC. According to the Revenue, the income from the said contract is liable to be taxed in India as the Assessee is stated to have a Permanent Establishment (PE) in India. According to the Assessee, its income from the contract in question is not taxable under the Act by virtue of the Double Taxation Avoidance Agreement between India and United Arab Emirates (UAE) (hereafter referred to as the ‘DTAA’). The Assessee claims that it does not have a PE in India and further, in any event, the income from fabrication and supply of platform is not taxable as the same pertains to the Assessee’s activities outside India.
3. Whilst the ITAT had rejected the Assessee’s contention that it does not have a PE in India, it accepted the Assessee’s contention that the contractual receipts from ONGC were separable and the amount received for fabrication and supply of platform outside India was not taxable under the Act. This has led both the Assessee and the Revenue to assail the orders passed by the ITAT.
4. These appeals were admitted and the following questions of law were framed in the appeals preferred by the Assessee (ITA 143/2013 and 144/2013):-
“1. Whether the Income Tax Appellate Tribunal was correct in holding that the appellant had a fixed place of business or permanent establishment in India as defined in Article 5(2)(c) of the Double Taxation Avoidance Agreement between India and UAE.
2. Whether the Income Tax Appellate Tribunal was justified and correct in holding that the installation permanent establishment under Article 5(2)(h) of the Double Taxation Avoidance Agreement between India and UAE is not dependent on the date of actual start of execution of the contract but had come into existence on the date of award of contract?
3. Whether the income Tax Appellate Tribunal was right in holding that Arcadia Shipping Ltd. was a dependent agent permanent establishment of the appellant in India under Article 5 of the Double Taxation Avoidance Agreement between India and UAE.
4. Whether the Income Tax Appellate Tribunal has not attributed and determined the taxable income under installation and commissioning; whether the said issue/question has remained undecided and the effect thereof.
5. Whether the order of the Income Tax Appellate Tribunal violates and is contrary to Article 7(6) of the Double Taxation Avoidance Agreement between India and UAE.”
5. The following questions of law were framed in the appeals preferred by the Revenue (ITA 795/2014 and 533/2013):-
“1. Did the ITAT fall into error in holding that the assessee's contract with the ONGC was divisible in the circumstances of the case;
2. Did the ITAT erred in law in holding that no income accrued to the assessee on account of offshore supplies it made;
3. In case question no.(2) is answered in favour of the Revenue, the appropriate
