Sen, J. - The advance ruling has been sought on the following questions of law :—

"1. Whether on the facts and in the circumstances, the applicant can be said to have a permanent establishment in India ?

2. Whether under paragraph 3(a) of Article 7 of the ADT agreement between India and Belgium, the profits attributable to the permanent establishment can be worked out on completed contract method ?

3. Though the said para 3(a) speaks of deduction of expenses, whether depreciation of allowance will be granted on dredgers, boats, equipment, computers and other plant and machinery deployed for the execution of the contract on the basis of cost of acquisition, since the said assets were not put to use in India any time before and no depreciation is ‘actually allowed’ under the Income-tax Act, 1961 ?

4. Whether repairs and maintenance expenses incurred before commencement of the contract and to be incurred immediately after completion of the contract on dry docking, etc., but relating to the execution of the contract, shall be allowed as deduction or could be capitalised on the cost of equipment, if depreciation is held allowable ?

5. Whether standing charges for the assets specifically taken on hire/lease for the Indian contract/sub-contract will be allowed as deduction in computing taxable income payable for the period, though the assets are required to be kept or remain idle, though ready for use, during the execution of the contract ?

6. Whether writing off of obsolete assets shall be allowed as deduction ?

7. Will the applicant get credit for the tax deducted at source if any, in the year of completion of contract when full profits, if taxable, will be offered for tax under section 199, without treating the tax deducted earlier as liable to tax as income received under section 198 ?

8. Without prejudice to the above, whether on the facts and in the circumstances, the rationale behind the provisions of section 44BBB would be applicable in the case of the appellant and a sum equal to ten per cent of the contract amount as and when paid shall be deemed to be the profits and gains chargeable under the head ‘Profits and gains of business or profession’ ?

9. Without prejudice to the facts and in the circumstances, the amount of taxable profit could be determined by AAR at a fixed percentage of the gross receipts based on applicant’s past profitability statements and other relevant factors, either assessable in the year of completion of the contract or yearwise ?"

2. The following submissions have been made by the applicant in this case:

"1. The applicant is a company incorporated in Belgium having its Registered Office at Tragel 23, 9308 Hofstade - Aalst, Belgium. The applicant is engaged in the business of dredging and marine contracting. The business of the applicant is managed by a board of directors who are non-resident foreign nationals. Control and management of the affairs of the company is situated wholly outside India. The company has no branches in India.

2. The applicant has been awarded a contract by the Chennai Port Trust for the work of dredging at their new port known as ‘Ennore Coal Port Project’. The total approximate cost of the contract is Rs. 847,914,875. The preliminary work relating to the contract has already been commenced and the entire contract is expected to be completed in July, 2000. The scope of works described in the contract as per clause 1001.2 on page 208 is as follows :— ‘The works to be executed under this contract comprise the dredging of Port Basin, approach channel, and the Small Craft Harbour, to create an adequate depth for navigation to and within the port area, including disposal of dredged material on land and at sea.’

3. The applicant has opened a temporary project office in India to execute the said contract. The applicant has obtained permission from the Reserve Bank of India, Chennai, to open the project office. The applicant shall deploy from abroad its dredgers, survey equipment, boats,