1. Mazagaon Dock Limited of India (MDL) was awarded a contract by the Oil & Natural Gas Commission (ONGC) for the installation of sub-sea gas pipeline including the 12" SHG gas pipeline (SHG pipeline) to be laid between B121 platform and the SHG platform, offshore India. For the execution of the said contract, MDL sub-contracted a part of the installation work of the SHG pipeline to Hyundai Heavy Industries Co. Ltd. (HHI). For the purpose of execution of its contract with MDL, HHI sub-contracted a part of the installation work of the SHG pipeline to Brown & Root Inc. (BRI).

2. The applicant, Brown & Root Inc., is a company duly incorporated and existing under the laws of the United States of America with its office at 1209 Orange Street, Wilmington, Delaware 19801, United States of America. During the previous year ending on 31-3-1997, BRI had entered into a contract with HHI in relation to the installation of the 12" SHG gas pipeline between the B121 platform and the SHG platform offshore India, by mobilising the 8-point mooring vessel ‘Subtec 1’ and the test support vessel ‘Captain BO’. It was completed in 39 days from the date of commencement, i.e., from 30-11-1996 to 7-1-1997.

3. An agreement for Avoidance of Double Taxation exists between India and the United States of America (‘DTAA’). It is contended by the applicant in its statement containing interpretation of law and facts that where there is such an agreement, the provisions of DTAA will prevail over those contained in the domestic laws of both countries, if the provisions of DTAA are more favourable to the assessee. In this connection, it has relied on the judgment of the Andhra Pradesh High Court in CIT v. Vishakhapatnam Port Trust [1983] 144 ITR 146/ 15 Taxman 72. Reliance has also been placed on section 90(2) of the Income-tax Act, 1961 inserted by the Finance Act, 1991 which reads as under :

"(2) Where the Central Government has entered into an agreement with the Government of any country outside India under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee."

The applicant contends that since it is a tax resident of USA, the issue of its tax liability should be determined in accordance with the provisions of DTAA.

4. According to the applicant, the work was mainly carried out at various depths of sea and it required mobilisation and demobilisation of diving personnel/equipment including the 8-point mooring vessel "Subtec 1" and the test support vessel ‘Captain BO’ which were used by BRI to execute the work under its contract with HHI. It is stated that its duties were primarily as a work contractor and that for performing the contract, it did not require or maintain any office or fixed place of business in India or any establishment of the nature mentioned in article 5 of DTAA between India and USA. Accordingly, it is contended that the revenues earned by BRI under the contract fall within the scope of business profits as dealt in article 7 of DTAA. Under this article, business profits arising to a US tax resident in India are taxable in India only if the US tax resident carried on business in India through a permanent establishment (PE) and to the extent the profits are attributable to the PE of such US resident. The applicant submits that BRI could have been construed to have a PE in India as per paragraph (2)(k) of article 5 of DTAA, provided its activities in India including those in relation to the projects or sites, had continued for a period of more than 120 days in any twelve months period. In the present case, the total duration of contract executed by BRI was 39 days, i.e., from 30-11-1996 to 7-1-1997. The applicant has clarified that it has not carried out any activity in India except for the execution of the contract referred to in the applica