Garg, A.M. - This is an appeal by the revenue against the order of the CIT(A) for assessment year 1986-87. The only ground raised in this appeal reads as under :

"On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the D.C. was not justified in holding that assessee’s income is taxable in India. Further also erred in cancelling the assessment made under section 143(3) of the I.T. Act, 1961."

2. The assessee, a non-resident company incorporated in the United Kingdom, received Rs. 1,58,48,719 from Mazagaon Dock Ltd. in pursuance of an agreement dated 2-4-1985 and Rs. 98,39,380 from Oil & Natural Gas Commission vide agreement dated 29-8-1985. Under both the agreements, the assessee undertook the work of inspection and repairing of submarine pipeline networks, used in connection with oil and gas exploration, extraction and production with the help of a vessel, Special Remotely Operated Vehicles (hereinafter referred to as ‘ROV’), which performed the submarine work. Relying upon article 7(1), read with article 5(2)(h) and (i) of the Double Taxation agreement, the Assessing Officer held that the profit arising from these receipts is taxable in India. The profit was estimated at the rate of 10 per cent of the receipts and was brought to tax.

3. In appeal before the CIT(A), the assessee referred to article 5 of the Double Taxation Agreement, (hereinafter referred to as ‘DTA’) which defined ‘Permanent Establishment’ as under :

"Article 5. Permanent Establishment—

(1) for the purpose of this convention the term ‘permanent establishment’ means a fixed place of business in which the business of the enterprise is wholly or partly carried on."

On the basis of the above, the assessee pointed out that a ship cannot be considered a fixed place of business. The assessee stated that it was in the Indian shore for only 2½ months and the only job was to undertake the repairs of pipelines. It was also pointed out that since the assessee was engaged in extraction, exploration of natural resources, it could not be treated to have a permanent establishment in India, both physically and also for the job. The CIT(A) held by accepting the assessee’s contention that it was not caught by any of the conditions of permanent establishment and, therefore, not liable to tax. Aggrieved, the revenue is in appeal before us.

4. The learned Departmental Representative, Shri D.K. Singh, submitted that remotely operated vehicles, positioning system, data acquisition and interface system used by the assessee were fixed places of business in terms of articles 5(1) of DTA. It is operating near the fixed place. It is also covered by clauses (h) and (i) of article 5(2) of DTA. He also submitted that period of operation for these clauses is not relevant and that it would be sufficient that it was a fixed place of business or a place or installation of structure used for extraction of natural resources. He also referred to clause (k) inserted by the 1994 amended treaty with U.K. He submitted that it is in indication of the DTA that period was no consideration for determining a fixed place of business or a permanent establishment.

5. The learned counsel for the assessee, Shri A.V. Sonde, on the other hand, submitted that the assessee was engaged only for inspection and repairs of pipelines, which is carried on with a moving vessel which cannot be said to be a fixed place of business, not it could be termed as a place or structure/installation used for extraction of natural gas, etc. Referring to article 5(2) of DTA he submitted that all insertions there are of fixed places and whenever temporary installation of structure is included, a period is prescribed, as in clause (j). As regards clause (k) of the 1994 amended treaty, he submitted that it came into force on 11-2-1994 and, therefore, does not govern the case of the assessee which pertains to the assessment year 1986-87.

6. The Oil & Natural Gas Commission of India (hereinaft