Bellsea Ltd., Gurgaon V. DDIT (International Taxation), New Delhi

ITA 1410/DEL/2016

• Counselvise Citation: [2019] 114 COUNSELVISE.COM (IT) 6193 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2009-2010
• Appeal Filed On: 14-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G K DHALL
• Keywords: Double taxation relief; Permanent establishment

Judgement Text

PAGE | 1 INCOME TAX PPELLATE TRIBUNAL DELHI BENCH D: NEW DELHI BEFORE SHRI G.S. PANNU, HONBLE VICE PRESIDENT AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER ITA NO.1410/DEL/2016 (ASSESSMENT YEAR: 2009-10) M/S BELLSEA LTD., 18 TH FLOOR, BUILDING NO.10, TOWER-C, DLF CYBER CITY, PHASE-II, GURGAON. PAN:AADCB4030D VS DDIT (INTERNATIONAL TAXATION) CIRCLE 3(2), NEW DELHI. APPELLANT RESPONDENT REVENUE BY : SHRI G.K. DHALL, CIT- DR ASSESSEE BY: SHRI RISHABH MALHOTRA, ADVOCATE DATE OF HEARING: 05.11.2019 DATE OF PRONOUNCEMENT:18.11.2019 O R D E R PER K. NARASIMHA CHARY, JM THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 29.01.2015 PASSED BY THE LEARNED COMMISSIONER OF IN COME-TAX (APPEALS)- 42, NEW DELHI (CIT(A)) FOR THE ASSTT. YEAR 2009-1 0. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A COMPANY INCORPORATED AND A TAX RESIDENT OF CYPRUS. DURING T HE FINANCIAL YEAR 2007- PAGE | 2 08, ASSESSEE WAS AWARDED A CONTRACT BY ALLSEAS MARI NE CONTRACTORS, S.A.(AMC) IN RELATION TO THE DEVELOPMENT OF THE DHI RUBHAI 1 AND DHIRUBHAI 3 GAS FIELDSLOCATED OFFSHORE IN THE KRISH NA GODAVARI BASINOF THE EAST COAST OF INDIA. THE WORK ON THE CONTRACT COMM ENCED IN APRIL 2008 AND WAS COMPLETED IN SEPTEMBER, 2008 I.E. THE ACTIV ITY OF ASSESSEE CONTINUED FOR A PERIOD OF SIX MONTHS. IN THE DRAFT ASSESSMENT ORDER FOR AY 2008-09, LD. AO HELD THAT THE ASSESSEE HAD A PE IN INDIA. DURING THE COURSE OF HEARING, ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY IT SHOULD NOT BE REGARDED TO CONSTITUTE A PERMANENT ESTABLISHMENT (PE) IN INDIA AS PER ARTICLE 5(2)(G) OF INDIA-CYPRUS TAX TREATY FOLLOWIN G THE ASSESSMENT ORDER FOR AY 2008-09. ASSESSEE SUBMITTED THAT AS PER THE PROVISIONS OF ARTICLE 5(2)(G) OF THE DTAA, A NON-RESIDENT ENGAGED IN CONS TRUCTION ACTIVITIES IN INDIA WOULD BE CONSIDERED AS HAVING A PE IN INDIA O NLY IF THE CONSTRUCTION ACTIVITY CONTINUES FOR A PERIOD EXCEEDING TWELVE MO NTHS; THAT THE ASSESSEE DOES NOT CONSTITUTE A PE AS THE ACTIVITIES UNDER THE CONTRACT LASTED FOR LESS THAN 12 MONTHS. 3. LD. AO PASSED THE ORDER DATED 30.1.2012 U/S 143( 3)/144C OBSERVING THAT FOR THE REASONS RECORDED IN THE ASSE SSMENT ORDER FOR THE AY 2008-09, THE ASSESSEE IS HELD TO HAVE PE IN INDI A IN TERMS OF THE DURATION OF ASSESSEES OPERATION IN INDIA. WHILE H OLDING THAT CONCLUSION, LD. AO STATED THAT THE ASSESSEE HAS BEEN DOING INST ALLATION AND ASSEMBLY AND ITS ROLE IS NOT CONFINED TO MERE ROCK PLACEMENT IN THE RIVER SECTION FOR PROTECTION OF PIPELINES AND THAT THE ASSESSEES CASE IS SQUARELY COVERED BY ARTICLE 13 OF THE DTAA SINCE THE ASSESSE E WAS PROVIDING SERVICES WHICH ARE OF A TECHNICAL, MANAGERIAL CONSU LTANCY IN NATURE. ON THAT PREMISE, LD.AO MADE AN ADDITION OF RS.9,99,34, 354/- BEING 10% OF PAGE | 3 THE GROSS RECEIPTS OF THE ASSESSEE AT RS.99,93,43,5 40/-. AGGRIEVED BY SUCH AN ADDITION, ASSESSEE PREFERRED AN APPEAL. LD . CIT(A) DISMISSED THE APPEAL AND CONFIRMED THE ADDITION MADE BY THE AO. 4. ASSESSEE IS, THEREFORE, IN THIS APPEAL BEFORE US CONTENDING THAT AS PER THE CONTRACT WITH AMC, THE ROLE OF THE ASSESSEE WAS CONFINED ONLY TO MERE ROCK PLACEMENT IN RIVER SECTION AND THE ASSESS EE HAS BEEN DOING MERE CONSTRUCTION ACTIVITY. THEY FURTHER SUBMITTED THAT THE ACTIVITY UNDER THE CONTRACT LASTED FOR THE PERIOD OF LESS TH AN 10 MONTHS AND, THEREFORE, UNDER ARTICLE 5(2)(G) OF INDO CYPRUS DTA A, THERE EXIST NO PE IN INDIA. LD. AR SUBMITTED THAT THE LD. AO HAD TAKEN THE DATE OF COMMENCEMENT OF THE ACTIVITY OF THE ASSESSEE FOR TH E PURPOSE OF DETERMINING THE EXISTENCE OF PE FROM THE DATE OF TH E VISIT OF ONE OF THE EMPLOYEES, NAMELY, MR. HARRYBELJAARS IN SEPTEMBER, 2007 BUT SUCH VISIT OF MR. HARRY WAS ONLY TO COLLECT DATA AND INFORMATI ON TO BID FOR THE CONTRACT WITH AMC AND, THEREFORE, CANNOT BE RECKONE D FOR THE PURPOSE OF DETERMINATION OF DURATION U/S 5(2)(G) OF THE DTAA. 5. ACCORDING TO THE LD. AR, THE ASSESSEE WAS AWARDE D CONTRACT ONLY ON 4.1.2008 BY AMC AND FOR DISCHARGING ALL CONTRACT UAL OBLIGATIONS, THE ASSESSEE MOBILIZED ITS FIRST VESSEL TO INDIA ON 23. 2.2008 AND, THEREFORE, IT CANNOT BE SAID THAT THE ACTIVITIES OF THE ASSESSEE UNDER THE CONTRACT ENDS AT ANY TIME EARLIER TO 23.2.2008. HE HAS FURTHER S UBMITTED THAT CONTRACT WORK WAS COMPLETE BY 30.9.2008 AND, THEREFORE, THE PERIOD TO BE RECKONED FOR THE PURPOSE OF DETERMINATION OF PE UND ER ARTICLE 5(2)(G) DOES NOT SATISFY THE THRESHOLD PERIOD OF 12 MONTHS. PAGE | 4 6. HE FURTHER SUBMITTED FOR THE AY 2008-09 IN ASSES SEES OWN CASE, A COORDINATE BENCH OF THIS TRIBUNAL DEALT WITH THIS I SSUE AT LENGTH AND REACHED A CONCLUSION THAT THE THRESHOLD PERIOD OF 1 2 MONTHS WAS NOT EXCEEDED IN THE CASE OF THE ASSESSEE AND CONSEQUENT LY, NO PE WAS ESTABLISHED UNDER ARTICLE 5(2)(G) OF THE DTAA. HE SUBMITTED THAT THE FACTS BEING IDENTICAL AND THE PERIOD OF SIX MONTHS IS DISTRIBUTED IN TWO ASSESSMENT ORDERS, FINDING OF THE TRIBUNAL IN ASSES SEES OWN CASE FOR THE AY 2008-09 IS RELEVANT FOR THIS ASSESSMENT YEAR ALS O AND CLINCHES THE ISSUE. 7. LEARNED DR VEHEMENTLY RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT FOR ALL PRACTICAL PURPOSES UNDER ARTICLE 5(2)(G) OF THE DTAA, THE DURATION OF ASSESSEES OPERATION I N INDIA HAVE TO BE COUNTED FROM THE VISIT OF ITS EMPLOYEE IN SEPTEMBER 2007 AND THEY HAVE LASTED WELL BEYOND THE PERIOD OF 12 MONTHS AS CONTE MPLATED IN ARTICE 5(2)(G) OF THE DTAA. 6. WE HAVE GONE THROUGH THE RECORD IN THE LIGHT OF THE SUBMISSIONS IN ASSESSEES OWN CASE IN RESPECT OF VERY SAME CONTRAC T FOR THE AY 2008-09, A COORDINATE BENCH OF THIS TRIBUNAL IN ITA NO.5759/ DEL/2011 AND REACHED THE FOLLOWING CONCLUSIONS: 12. THE RATIO AS CULLED OUT FROM THE AFORESAID JUDGMENT IS THAT A BUILDING SITE OR AN ASSEMBLY PROJECT CAN ONLY BE CO NSTRUED AT FIXED PLACE OF BUSINESS ONLY WHEN AN ENTERPRISE COMMENCES ITS A CTIVITIES AT THE PROJECT SITE. ANY ACTIVITY WHICH MAY BE RELATED OR INCIDENTAL BUT WAS NOT CARRIED OUT AT THE SITE IN THE SOURCE COUNTRY WOULD CLEARLY NOT BE CONSTRUED AS A PE. ALBEIT, PREPARATORY WORK AT THE SITE ITSELF CAN BE COUNTED FOR THE PURPOSE OF DETERMINING OF DURATION OF PE. HOWEVER, IN THE PRESENT CASE THERE IS NO SUCH ALLEGATION OR MAT ERIAL ON RECORD THAT ANY KIND OF PREPARATORY WORK HAD STARTED AT THE INS TALLATION SITES PRIOR TO 4 TH OF JAN 2008. THE PERIOD FROM WHICH IT CAN BE RECKO NED THAT ENTERPRISE PAGE | 5 HAS STARTED TO PERFORM THE ACTIVITIES IN CONNECTION WITH INSTALLATION PROJECT OR SITE ETC. IS WHEN THE ACTUAL PURPOSE OF THE BUSINESS ACTIVITY HAD STARTED. THE PERFORMANCE OF THE ACTIVITIES IN T HE PRESENT CASE CAN ONLY BE RECKONED FROM 4 TH JANUARY, 2008 (EVEN THOUGH LD. COUNSEL STATED THAT FIRST MOBILIZATION OF VESSEL/BARGE WAS 23 RD FEBRUARY, 2008); AND NOT BEFORE THAT AS THE PREPARATORY WORK IF ANY, WAS FOR TENDERING PURPOSE AND TO GET THE CONTRACT. 13. IN SO FAR AS THE DATE OF COMPLETION, THE CO NTRACT PROVIDES THE COMPLETION DATE OF 1 ST AUGUST, 2008, WHEREAS AS PER THE MATERIAL PLACED ON RECORD AND ALSO THE PAYMENT SCHEDULE ETC., POINT S OUT THAT ALL THE ACTIVITIES CONNECTED WITH THE PROJECT INCLUDING THE RECEIVING OF THE PAYMENTS WAS BEFORE 30 TH SEPTEMBER 2008 AND EVEN THE COMPLETION CERTIFICATE MENTIONS 30 TH SEPTEMBER 2008. THOUGH CERTAIN FORMALITIES FOR FINAL COMPLETION CERTIFICATE MAY HAVE EXCEEDED ONE OR TWO MONTHS BUT STILL IT WILL NOT MAKE THE CONTINUITY OF THE ACTIVI TY WHERE IT HAS BEEN BROUGHT ON RECORD THAT THE LAST BARGE SAILED OUT OR WAS DECOMMISSIONED FROM INDIA ON 25 TH SEPTEMBER, 2008 AND THE ENTIRE PAYMENTS WERE RECEIVED ON OR BEFORE THAT DATE. THE ACTIVITY QUA T HE PROJECT COMES TO AN END WHEN THE WORK GETS COMPLETED AND THE RESPONSIBI LITY OF THE CONTRACTOR WITH RESPECT TO THAT ACTIVITY COMES TO E ND. HERE ACTIVITY OF THE ASSESSEE QUA THE PROJECT AS PER THE TERMS OF CONTRA CT HAD COME TO AN END ON OR BEFORE 30 TH SEPTEMBER, 2008 FOR THE REASON THAT; FIRSTLY, LAST SAIL OUT OF BARGE/VESSEL WAS 25 TH SEPTEMBER 2008 AND CUSTOMS AUTHORITIES HAVE ALSO CERTIFIED THE DEMOBILIZATION BY THIS DATE; SECONDLY, ALL THE PAYMENTS RELATING TO CONTRACT WORK WERE REC EIVED BY THE ASSESSEE MUCH BEFORE THE CLOSING OF SEPTEMBER, 2008; THIRDLY , THE COMPLETION CERTIFICATE TOO MENTIONS THE DATE OF COMPLETION AS 30 TH SEPTEMBER, 2008, THOUGH THE FORMALITIES OF FINAL COMPLETION CERTIFIC ATE MAY HAD EXCEED UNTIL NOVEMBER 2008, BUT THE DATE MENTION FOR COMPL ETION IN THE CERTIFICATE IS 30 TH SEPTEMBER 2008 ONLY; AND LASTLY, THERE IS NOTHING ON RECORD TO SUGGEST THAT ANY ACTIVITY POST COMPLETION HAS BEEN CARRIED OUT BEYOND 31 ST DECEMBER, 2008 OR THE PROJECT OF THE ASSESSEE WAS NOT COMPLETELY ABANDONED BEFORE THE PERIOD OF 12 MONTHS . THE CONTENTIONS RAISED BY THE LD. CIT DR IN HIS SUBMISSIONS, BOTH F OR THE STARTING PERIOD AND FINAL END DATE OF THE INSTALLATION PROJECT IS W ITHOUT ANY FACTUAL MATERIAL TO SUPPORT. HIS INFERENCE ARE BASED ON PRE SUMPTIONS THAT FOR CARRYING OUT SUCH A WORK AND TO COMPLY WITH THE CER TAIN CONDITIONS OF CONTRACT THERE MUST HAVE BEEN SUBSTANTIVE ACTIVITY BEFORE THE EFFECTIVE DATE; AND AFTER THE DATE OF DECOMMISSIONING OF THE PROJECT/ DEMOBILISATION CERTAIN FORMALITIES MUST HAVE BEEN C ARRIED OUT. SUCH A CONTENTION SANS ANY CORROBORATIVE MATERIAL CANNOT B E ACCEPTED, BECAUSE THE ONUS IS HEAVILY UPON THE REVENUE TO ESTABLISH T HAT THAT ASSESSEES PAGE | 6 ACTIVITY HAD CROSSED THE THRESHOLD PERIOD OF 12 MON THS AND HENCE CONSTITUTES PE IN INDIA IN TERMS OF ARTICLE 5(2)(G) SO AS TO TAX THE RECEIPTS IN INDIA AS PER ARTICLE 7. 14. THUS, ON THE FACTS AND MATERIAL ON RECORD AND IN VIEW OF OUR REASONING GIVEN ABOVE WHICH IS IN CONSONANCE AND IN LINE WITH THE PRINCIPLE LAID DOWN IN THE HONBLE JURISDICTIONAL H IGH COURT, WE HOLD THAT THRESHOLD PERIOD OF 12 MONTHS HAVE NOT EXCEEDED IN THE PRESENT CASE AND CONSEQUENTLY NO PE CAN BE SAID TO HAVE BEEN EST ABLISHED IN ARTICLE 5(2)(G) . ACCORDINGLY, WE HOLD THAT NO INCOME OF TH E ASSESSEE ON THE CONTRACT EXECUTED BY ASSESSEE IN INDIA CAN BE HELD TO BE TAXABLE IN TERMS OF ARTICLE 7. THUS GROUND RAISED BY THE ASSESSEE ON THIS SCORE IS ALLOWED. 7. ON THE VERY SAME SET OF FACTS, A COORDINATE BENC H OF THE TRIBUNAL REACHED THE ABOVE CONCLUSION AFTER DEALING WITH THI S ISSUE AT LENGTH AND, THEREFORE, IT IS NOT POSSIBLE FOR US TO TAKE A DIFF ERENT VIEW FOR THIS ASSESSMENT YEAR. WHILE RESPECTFULLY FOLLOWING THE SAME, WE ANSWER THE ISSUE IN FAVOUR OF THE ASSESSEE HOLDING THAT NO INC OME OF THE ASSESSEE ON CONTRACT EXECUTED BY THE ASSESSEE IN INDIA CAN BE H ELD TO BE TAXABLE UNDER ARTICLE 5(2)(G) OF THE DTAA. GROUNDS OF APPEA L OF THE ASSESSEE ARE ACCORDINGLY ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH NOVEMBER, 2019. SD/- SD/- ( G.S. PANNU) (K. NARASIMHA CHARY) VICE PRESIDENT JUDIC IAL MEMBER DATED: 18 TH NOVEMBER, 2019. VJ COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI PAGE | 7 DATE OF DICTATION 05.11.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 05.11.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 18.11.2019 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P S/ PS 18.11.2019 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 18.11.2019 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/ PS 18.11.2019 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT 18.11.2019 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 18.1 1.2019 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER