KREUZ SUBSEA PTE LTD, MUMBAI V. DDIT (IT) 3(1), MUMBAI

ITA 1876/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92964 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 16-02-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 19-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief; Permanent establishment
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH L, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 1876/MUM/2014 ASSESSMENT YEAR: 2010-11 M/S. KREUZ SUBSEA PTE. LTD C/O SRBC & ASSOCIATES- CAS 14 TH FLOOR, THE RUBY, 29, SENAPATI BAPAT MARG, DADAR (WEST) MUMBAI-400 028 PAN:-AADCK 6822 G VS. THE DEPUTY DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) 3(1), 1 ST FLOOR, ROOM NO. 103 SCINDIA HOUSE, N.M. MARG, BALLARD PIER MUMBAI-400 038 (APPELLANT ) (RESPONDENT) ASSESSEE BY : SHRI PERCY PARDIWALA REVENUE BY : SHRI S. D. SRIVASTAVA DATE OF HEARING : 06.04 .2015 DATE OF PRONOUNCEMENT : 12 .06.2015 O R D E R PER AMIT SHUKLA, JM: THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESS EE, AGAINST FINAL ASSESSMENT ORDER DATED 22.01.2014, PASSED BY DDIT [ INTERNATIONAL TAXATION] 3(1) MUMBAI, IN PURSUANCE OF DIRECTION GI VEN BY THE DISPUTE RESOLUTION PANEL [DRP] U/S 144C(5) FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) R.W.S. 144C (13) FOR THE A.Y. 201 0-11. THE ASSESSEE IS MAINLY AGGRIEVED BY ASSESSMENT OF TOTAL INCOME A T RS.9,63,55,119/- ON THE GROUND THAT THE ASSESSEE HAS SERVICE PERMANE NT ESTABLISHMENT ITA NO. 1876/MUM/2014 ASSESSMENT YEAR: 2010-11 2 (PE) IN INDIA. THE EFFECTIVE GROUND IN THIS REGAR D HAVE BEEN RAISED VIDE GROUND NO. 2 TO 5. SUM AND SUBSTANCE OF THE GROUNDS ARE THAT:- I) THE LD. ASSESSING OFFICER HAS ERRED IN LAW AND ON FACTS HOLDING THAT ASSESSEE CONSTITUTED IN SERVICE PE IN INDIA UN DER ARTICLE 5(6) OF INDIA SINGAPORE DTAA; II) THE LD. ASSESSING OFFICER HAS ERRED IN APPLYIN G PROVISION OF ARTICLE 5(6) INSTEAD OF APPLYING SPECIFIC PROVISION OF ARTICLE 5(3), APPLICABLE IN THE CASE OF ASSESSEE ; AND III) THE LD. ASSESSING OFFICER HAS FAILED TO APPRECI ATE THAT THE ASSESSEE DID NOT HAVE PE IN INDIA UNDER ARTICLE 5(3 ) AS DURATION OF EACH OF ITS PROJECT IN INDIA WAS LESS T HAN THE THRESHOLD OF 183 DAYS, DURING THE RELEVANT FISCAL Y EAR. 2. BRIEFLY STATED, THE FACTS OF THE CASE QUA THE IS SUE RAISED ARE THAT, ASSESSEE IS A COMPANY INCORPORATED IN AND IS A TAX RESIDENT OF SINGAPORE. IT IS MAINLY ENGAGED IN THE BUSINESS OF INTEGRATED SUBSEA INSTALLATION SERVICE PROVIDING COMPANY. IT HAS ALSO FILED TAX RESIDENCY CERTIFICATE BEFORE THE AO TO CLAIM BENEFIT UNDER TH E INDIA SINGAPORE DTAA. DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 201 0-11, THE ASSESSEE HAD UNDER TAKEN INSTALLATION AND CONSTRUCTION ACTIV ITY IN RESPECT OF THE FOLLOWING PROJECTS IN INDIA IN PURSUANCE OF CONTRAC T:- A) CONTRACT WITH ALLSEAS; B) CONTRACT WITH SWIBER-BG HYDRA PROJECT; C) CONTRACT WITH SWIBER-BG GASLIFT PROJECT; THE PRESENCE OF ASSESSEE IN INDIA DURING THE RELEVA NT PREVIOUS YEAR FOR THE AFORESAID INSTALLATION PROJECTS AND THE REVENUE EARNED DURING THE YEAR, FROM SUCH PROJECTS ARE AS UNDER:- ITA NO. 1876/MUM/2014 ASSESSMENT YEAR: 2010-11 3 ENTITY PROJECT DURATION FOR THE YEAR ENDING 2010 REVENUES FOR THE YEAR (USD) SWIBER-BG HYDRA PROJECT 56 DAYS (1 APRIL 2009 TO 26 MAY 2009) 3,945,331 SWIBER-BG GAS LIFT PROJECT 109 DAYS (27 OCTOBER 2009 TO 12 FEBRUARY 2010) 8,230,587 ALLSEAS 102 DAYS (1 APRIL TO 11 JULY 2009) 11,603,766 TOTAL 23,779,684 THE PROJECT COMPLETION CERTIFICATE WAS ALSO SUBMITT ED BY THE ASSESSEE BEFORE THE AO. THE CASE OF ASSESSEE BEFORE THE ASSE SSING OFFICER WAS THAT, THE TOTAL DURATION OF THE ASSESSEES CONTRACT WITH AFORESAID PARTIES FOR THE PROJECT OF INSTALLATION UNDERTAKEN WAS LESS THAN 183 DAYS AND HENCE THE CONDITIONS FOR SATISFYING THE DURATION TE ST FOR CONSTITUTING SERVICE PE IN INDIA UNDER ARTICLE 5(3) DOES NOT FUL FILL AND ACCORDINGLY, THE REVENUE EARNED BY THE ASSESSEE SHALL NOT BE TAXABLE IN INDIA IN TERMS OF ARTICLE 7 OF THE TREATY. IN SUPPORT OF THIS CONTENT ION RELIANCE WAS PLACED ON VARIOUS DECISIONS WHICH HAS BEEN INCORPORATED BY THE AO FROM PAGES 2 TO 5 OF THE FINAL ASSESSMENT ORDER. 3. IN THE DRAFT ASSESSMENT ORDER, THE ASSESSING OFF ICER OBSERVED THAT IN SO FAR AS THE CONTRACT WITH M/S. SWIBER BG HYDRA PROJECT, THE CONTRACT WAS SIGNED ON 01.08.2009 AND WAS COMPLETED ON 12.02 .2010 AND THEREFORE, THE DURATION OF THE SAID PROJECT WAS MOR E THAN 183 DAYS. THE REASON GIVEN BY HIM WAS THAT, THE CONTRACTS ARE PRO CEEDED BY CERTAIN ACTIVITIES LIKE ESTIMATION OF WORK, RECONNAISSANCE OF PLACE FEASIBILITY ITA NO. 1876/MUM/2014 ASSESSMENT YEAR: 2010-11 4 STUDY ETC., WHICH REQUIRES PERSONNEL FROM ASSESSEE TO PHYSICALLY COME DOWN TO THE PLACE OF WORK AND TO EVALUATE. ALL THES E ACTIVITIES CONSTITUTES THE FOOT PRINTS OF THE ASSESSEE THAT CU MULATIVELY LEADS TO SUCCESSFULLY COMPLETION OF THE PROJECT. THEREFORE, THE PROJECT DURATION SHALL BE RECKONED STRICTLY FROM THE DATE OF EXECUTI ON OF THE AGREEMENT TO THE DATE OF COMPLETION. BESIDES THIS, THE ASSESSEE COULD NOT RECONCILE ITS REVENUE FROM THE CONTRACT AGREEMENTS ITEM WISE. THE ASSESSEE HAS NOT GIVEN PROPER EXPLANATION SO AS TO LEAD TO ESTABLISH MENT OF PE AND PROJECT HAS BEEN SO SCHEMED AS NOT TO LET THE PE TR IGGER, EVEN THOUGH THE NATURAL COURSE OF SUCH PROLONGED AND SPECIALIZE D ACTIVITY, PE GETS ESTABLISHED. ACCORDINGLY, HE HELD THAT ASSESSEE HAD PE IN INDIA DURING THE YEAR UNDER ARTICLE 5(3) AND ACCORDINGLY THE 10% OF THE GROSS REVENUE OF RS.128,92,53,378/- SHOULD BE TAXED. AGAI NST THE SAID DRAFT ASSESSMENT ORDER, THE ASSESSEE FILED OBJECTIONS BE FORE THE DRP. 4. THE DRP, EXAMINED THE PROJECT WISE DETAILS AND T HE DAYS OF PRESENCE OF THE ASSESSEE IN INDIA AND NOTED THAT IN SO FAR AS CONTRACT WITH ALLSEAS, DURATION OF EMPLOYEES WORKING IN INDI A VARIES FROM 3 DAYS TO 101 DAYS AND OVERALL 113 PERSONNELS WERE DEPLOY ED BY THE ASSESSEE IN INDIA FOR CARRYING OUT THE WORK. AS REGARDS, CON TRACT WITH SWIBER BG GASLIFT PROJECT AND CONTRACT WITH SWIBER BG HYDRA P ROJECT, THE DURATION OF THE EMPLOYEES IN INDIA VARIED FROM 7 DAYS TO 93 DAYS AND 5 DAYS TO 54 DAYS AND ALSO FOR SECOND TRIP 5 TO 22 DAYS, RESP ECTIVELY. THEREAFTER, THE DRP NOTED THAT AS PER ARTICLE 5(6), IF THE STAY OF EMPLOYEES OF THE PERSONNEL OF THE ASSESSEE IS MORE THAN 90 DAYS THE SAME WOULD CONSTITUTE A SERVICE PE IN INDIA AND THUS THE INCOM E OF THE ASSESSEE WOULD BECOME TAXABLE IN INDIA. THE DRP EXAMINED ALL THE 3 CONTRACTS VIS--VIS THE PROVISION OF ARTICLE 5(6) AND CAME TO THE CONCLUSION THAT ALL ITA NO. 1876/MUM/2014 ASSESSMENT YEAR: 2010-11 5 THE PROJECTS CONSTITUTE A SERVICE PE IN INDIA. ONE OF THE OTHER ARGUMENT OF THE ASSESSEE BEFORE THE DRP WAS THAT, THESE PROJ ECTS ARE GEOGRAPHICALLY NOT COHERENT THEREFORE; THESE PROJEC TS SHOULD BE CONSIDERED SEPARATELY. HOWEVER, THIS ARGUMENT OF TH E ASSESSEE WAS REJECTED ON THE GROUND THAT ASSESSEE COMPANY IS AN ASSOCIATE ENTERPRISE (AE) OF SWIBER AND BOTH THESE PROJECT WOULD BE TAKEN TOGETHER FOR DECIDING THE THRESHOLD OF THE DAYS IN CONSTITUTING THE PE. REGARDING RELIANCE PLACED BY THE ASSESSEE ON VARIOU S DECISIONS AND COMMENTARY ON THIS ISSUE, THE DRP HELD THAT THE ASS ESSEES OBJECTION IN THIS REGARD AS NO CONSEQUENCE HAS THESE ARE FOR ART ICLE 5(3) AND THE ASSESSEE COMPANY IS A SERVICE PE WITHIN THE SCOPE O F ARTICLE 5(6). 5. BEFORE US, LEARNED SENIOR COUNSEL, SHRI PERCY PA RDIWALA AFTER EXPLAINING THE ENTIRE FACTS SUBMITTED THAT, ASSESSE E WAS PURELY INTO INSTALLATION AND CONSTRUCTION ACTIVITY, THE DETAILS OF WHICH WAS GIVEN TO THE AO VIDE LETTER DATED 25.03.2013. ASSESSEES ACT IVITIES CLEARLY FALLS WITHIN ARTICLE 5(3) WHICH PROVIDES THAT CONSTRUCTIO N, INSTALLATION OR ASSEMBLY PROJECT CAN CONSTITUTE PE, ONLY IF IT CONT INUES FOR A PERIOD OF MORE THAN 183 DAYS IN ANY FISCAL YEAR. SINCE THE PR ESENCE OF THE ASSESSEE FOR THE PARTICULAR PROJECT WAS LESS THAN 1 83 DAYS, THEREFORE, NO SERVICE PE WAS ESTABLISHED IN INDIA. THE ASSESSING OFFICER INITIALLY IN THE DRAFT ASSESSMENT ORDER HELD THAT ARTICLE 5(3) IS AP PLICABLE, HOWEVER, THE DRP HAS NOW HELD THAT THE ASSESSEE CONSTITUTES PE U NDER ARTICLE 5(6). THE SAID PROVISIONS OF ARTICLE 5(6) IS NOT APPLICAB LE IN THE CASE OF THE ASSESSEE, BECAUSE IT ENVISAGES FURNISHING OF SERVI CES AND HERE IN THIS CASE, THE ASSESSEE IS PURELY INTO INSTALLATION AND CONSTRUCTION FOR WHICH SPECIFIC PROVISION HAS BEEN SEPARATELY ENSHRINED IN THE TREATY I.E. ARTICLE 5(3). ARTICLE 5(6) HAS NO APPLICATION IN THE PRESEN T CASE. FURTHER ITA NO. 1876/MUM/2014 ASSESSMENT YEAR: 2010-11 6 SEPARATE DAYS HAVE TO BE CALCULATED FOR THE SEPARAT E PROJECTS, FIRSTLY, THERE IS NO GEOGRAPHIC COHERENCE BETWEEN THE PROJEC TS AND SECONDLY, IN THE CASE OF THE SERVICE PE IN CONNECTION WITH CONST RUCTION, INSTALLATION OR ASSEMBLY, PROJECT WISE ACTIVITIES HAS TO BE SEEN ON STANDALONE BASIS. THEREFORE, FOR THE PURPOSE OF COUNTING NUMBER OF DA YS EACH PROJECT HAS TO BE EXAMINED SEPARATELY AND NOT BY AGGREGATING NU MBER OF DAYS SPENT ON VARIOUS PROJECT OR ACTIVITY ON CONSOLIDATE D BASIS. REGARDING OBSERVATION OF THE ASSESSING OFFICER THAT IN THE CA SE OF SWIBER BG HYDRA PROJECT WHICH HE HAS HELD THAT THE PERIOD OF DAYS S HOULD BE CALCULATED AND RECKONED FROM DATE OF SIGNING OF THE CONTRACT, HE SUBMITTED THAT SUCH A VIEW CANNOT BE UPHELD, BECAUSE WHAT IS RELEV ANT IS THE DATE ON WHICH THE PREPARATORY WORK FOR THE INSTALLATION ACT IVITY HAD COMMENCED. AT THE TIME OF SIGNING OF THE CONTRACT, THE PARTIES HAVE ONLY AGREED TO CARRY OUT THE WORK. THE DATE FROM WHEN ACTUAL WORK HAS COMMENCED, IS THE DATE WHICH SHOULD BE CONSIDERED FOR COUNTING T HE DAYS. IN SUPPORT OF THIS CONTENTION, HE RELIED UPON FOLLOWING DECISI ONS:- I) SUMITOMO CORPORATION VS DCIT REPORTED IN (2008) 114 ITD 61 AND ADIT VS. VALENTINE MARITIME (MAURITIUS) LTD. REPORT ED IN (2011) 45 SOT 34 II) CAL DIVE MARINE CONSTRUCTION (MAURITIUS) LTD. ( 2009) 315 ITR 334 (AAR) 6. ON THE OTHER HAND, LD. CIT DR, SHRI S.D. SRIVAST AVA STRONGLY RELIED UPON THE ORDER OF THE DRP AND SUBMITTED THAT THE AS SESSEE FOR THE PURPOSE OF INSTALLATION CARRIED OUT HOST OF SERVICE S WHICH FALLS WITHIN THE AMBIT OF FURNISHING SERVICES AS STIPULATED IN PAR A 6 OF ARTICLE 5. IF ARTICLE 5(6) IS TAKEN INTO CONSIDERATION THEN THE THRESHOLD PERIOD AS MENTIONED THEREIN HAVE CLEARLY CROSSES IN THE CASE OF THE ASS ESSEE. IF THE SERVICE ITA NO. 1876/MUM/2014 ASSESSMENT YEAR: 2010-11 7 PE IS NOT ESTABLISHED UNDER ARTICLE 5(3), THEN IT C LEARLY FALLS UNDER ARTICLE 5(6) IN THE CASE OF THE ASSESSEE. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER AND THE MATERIAL PLACED ON RECORD. THE ASSESSEE IS INTO THE BUSINESS OF INTEGRATED SUBSEA INSTALLATION SERVICES. IT HAS UNDERTAKEN 3 PROJECTS FOR INSTALLATION AND C ONSTRUCTION ACTIVITY WITH ALLSEAS MARINE CONTRACTORS AND SWIBER OFFSHORE CONSTRUCTION PTE. LTD. FOR BH HYDRA PROJECT AND BJ GASLIFT PROJECT. A S PER THE TERMS OF THE CONTRACT THE INSTALLATION AND CONSTRUCTION ACTIVITY IN ALL THE THREE CONTRACTS WERE AS UNDER:- A) CONTRACT WITH ALLSEAS I) INSTALLATION OF KREUZ SAT-01, A SATURATION DIVI NG SYSTEM, ON THE DYNAMIC POSITIONING VESSEL I.E. REM FORZA II) INSTALLATION OF SUBSEA ISOLATION VALUES I.E. SS IV III) INSTALLATION OF 24 SPOOLS BETWEEN RISERS ON OF FSHORE PROCESS PLATFORM AND SUBSEA PIPELINES CONNECTING WELL HEADS IN THE DEEPER WATER TOWARDS FACILITATING GAS FLOW FROM THE DEEP WELL HEADS TO PROCESS PLATFORM IV) INSTALLATION OF SUBSEA SPOOL TIE-IN, CONCRETE M ATTRESS AND ANY SUBSEA RELATED ACTIVITIES V) CARRYING OUT ASSOCIATED FREE SPAN AND PIPELINE CROSSING INSTALLATIONS AND RISER REMEDIAL ETC. B) CONTRACT WITH SWIBER-BG HYDRA A- SCOPE OF WORKS FOR INSTALLATION SERVICES FROM SW IBER SUPPORTER EXECUTION OF CONSTRUCTION AND INSTALLATION OF RISER CLAMPS, RISERS AND SPOOLS FROM BARGE SWIBER SUPPORTER (WORK VESSEL ), FREE ISSUED BY SWIBER. ITA NO. 1876/MUM/2014 ASSESSMENT YEAR: 2010-11 8 SUBSEA INSTALLATION SCOPE OF WORK SHALL INCLUDE: I) INSTALLATION OF RISERS, TWO NOS AT PPA (EXISTI NG) AND ONE EACH AT PK & SWP (NEW) PLATFORMS. II) INSTALLATION OF RISER AND I-TUBE CLAMPS FOR TWO RISERS AND ONE I-TUBE AT PPA PLATFORM III) INSTALLATION OF I-TUBE AT PPA PLATFORM ENCASHIN G A 2-INCH RIGID CHEMICAL INJECTION LINE IV) INSTALLATION OF SPOOL SPICE CONNECTORS AT PPA AND SWP PLATFORMS BETWEEN RISER AND PIPELINES AND PIGGY BAC K LINE AND CHEMICAL INJECTION LINE INSIDE OF I-TUBE V) INSTALLATION OF STALK ON 10 RISER AT PK PLATFOR M VI) INSTALLATION OF SPOOL PIECE CONNECTOR BETWEEN PI GGY BACK PIPE AND CHEMICAL INJECTION LINE INSIDE OF I-TUBE. B-SCOPE OF WORKS FOR INSTALLATION SERVICES FROM HD- 2500 EXECUTION OF CONSTRUCTION AND INSTALLATION FOR SUBS EA INSTALLATION OF SWP AND PK JACKETS (STRUCTURES) SHALL BE UNDERTA KEN BY KREUZ FROM BARGE HD-2500 (WORK VESSEL), CHARTERED BY SWIB ER. SUBSEA INSTALLATION SCOPE OF WORK SHALL INCLUDE. I) SEA BED SURVEYS AND INSTALLATION OF TRANSPONDERS O N SEA BED II) JACKET MUD MAT SURVEY WITH RESPECT TO SEA BED POST INSTALLATION III) MONITORING OF FLOOD AND VENT VALES SUBSEA DURING I NSTALLATION AND UPENDING OF STRUCTURE IV) DEMOLITIONS OF GROUT LINES AND REACH ROD POST STRU CTURE INSTALLATION V) REMOVAL AND DEMOLITION OF WORKING PLATFORM ON COMP LETION OF INSTALLATION VI) REMOVAL OF SUBSEA INSTALLATION SLINGS AND RIGGING ITA NO. 1876/MUM/2014 ASSESSMENT YEAR: 2010-11 9 C) CONTRACT WITH SWIBER-BG GASLIFT SWIBER ENTERED INTO CONTRACT WITH KREUZ VIDE SUBCON TRACT NUMBER 2009 018/OCS/KSS/BG-PGL FOR THE PERFORMANCE FOR OFFSHORE TRANSPORTATION AND INSTALLATION OF PIPELINES AND RISERS FOR THE PA NNA GAS LIFT PROJECT. EXECUTION OF CONSTRUCTION AND INSTALLATION OF RISER CLAMPS, RISERS AND SPOOLS SHALL BE UNDERTAKEN BY SUBCONTRACTOR FROM BA RGE SWIBER SUPPORTER (WORK VESSEL), FREE ISSUED BY CONTRACTOR. SUBSEA INSTALLATION SCOPE OF WORK SHALL INCLUDE: I) INSTALLATION OF RISERS II) INSTALLATION OF GROUT BAG OR MATTRESS CROSSINGS III) INSTALLATION OF RISER CLAMPS IV) INSTALLATION OF SPOOL SPICE CONNECTORS FROM PERUSAL OF THE AFORESAID ACTIVITIES, IT IS APP ARENT THAT ESSENCE OF ALL THE ABOVE CONTRACTS WAS TO UNDERTAKE SUBSEA INSTALL ATION AND CONSTRUCTION ACTIVITY AND NOT INTO THE PROVISION OF EQUIPMENT, MANPOWER SUPPLY OR FURNISHING OF ANY KIND OF SERVICES. THE ENTIRE CONTRACT IS FOR PURE INSTALLATION. THE PROJECT DURATION OF ALL THE THREE CONTRACTS HAD ALREADY BEEN LISTED IN THE FOREGOING PARAGRAPH EXCE PT FOR THE NUMBER OF DAYS IN THE CASE OF SWIBER BG HYDRA PROJECT, WHICH ACCORDING TO THE AO IS MORE THAN 183 DAYS, BECAUSE THE STARTING DAY OF THE PROJECT SHOULD BE RECKONED FROM THE DATE OF THE SIGNING OF THE CONTRA CT. 8. THE FIRST AND FOREMOST CONTROVERSY WHICH NEEDS T O BE ADJUDICATED HERE IS, WHETHER IN THE CASE OF THE ASSESSEE, THE S ERVICE PE CAN BE SAID TO BE ESTABLISHED/CONSTITUTED WITHIN THE SCOPE OF A RTICLE 5(3) OR ARTICLE 5(6). THE AO IN THE DRAFT ASSESSMENT ORDER HAD HELD THAT ARTICLE 5(3) IS APPLICABLE AND SINCE THE NUMBER OF DAYS OF THE EMPL OYEES WORKING IN INDIA HAS EXCEEDED 183 DAYS, THEREFORE, IT CONSTITU TES SERVICE PE IN ITA NO. 1876/MUM/2014 ASSESSMENT YEAR: 2010-11 10 INDIA. HOWEVER, NOW IN PURSUANCE OF DRP DIRECTION, THE DEPARTMENTS CASE IS THAT ASSESSEE IS SERVICE PE WITHIN THE SCOP E ARTICLE 5(6). FOR THE SAKE OF READY REFERENCE, RELEVANT PARAS OF ARTICLE 5 OF INDIA SINGAPORE DTAA IS REPRODUCED HEREUNDER:- 3. A BUILDING SITE OR CONSTRUCTION, INSTALLATION O R ASSEMBLY PROJECT CONSTITUTES A PERMANENT ESTABLISHMENT ONLY IF IT CONTINUES FOR A PERIOD OF MORE THAN 183 DAYS IN ANY FISCAL YE AR. 4. AN ENTERPRISE SHALL BE DEEMED TO HAVE A PERMANEN T ESTABLISHMENT IN A CONTRACTING STATE AND TO CARRY O N BUSINESS THROUGH THAT PERMANENT ESTABLISHMENT IF IT CARRIES ON SUPERVISORY ACTIVITIES IN THAT CONTRACTING STATE FOR A PERIOD O F MORE THAN 183 DAYS IN ANY FISCAL YEAR IN CONNECTION WITH A BUILDI NG SITE OR CONSTRUCTION, INSTALLATION OR ASSEMBLY PROJECT WHIC H IS BEING UNDERTAKEN IN THAT CONTRACTING STATE. 5. NOTWITHSTANDING THE PROVISIONS OF PARAGRAPHS 3 A ND 4, AND ENTERPRISE SHALL BE DEEMED TO HAVE A PERMANENT ESTA BLISHMENT IN A CONTRACTING STATE AND TO CARRY ON BUSINESS THROUG H THAT PERMANENT ESTABLISHMENT IF IT PROVIDES SERVICES OR FACILITIES IN THAT CONTRACTING STATE FOR A PERIOD OF MORE THAN 183 DAY S IN ANY FISCAL YEAR IN CONNECTION WITH THE EXPLORATION, EXPLOITATI ON OR EXTRACTION OF MINERAL OILS IN THAT CONTRACTING STATE. 6. AN ENTERPRISE SHALL BE DEEMED TO HAVE A PERMANEN T ESTABLISHMENT IN A CONTRACTING STATE IF IT FURNISHE S SERVICES, OTHER THAN SERVICES REFERRED TO IN PARAGRAPHS 4 AND 5 OF THIS ARTICLE AND TECHNICAL SERVICES AS DEFINED IN ARTICLE 12, WITHIN A CONTRACTING STATE THROUGH EMPLOYEES OR OTHER PERSONNEL, BUT ONL Y IF: (A) ACTIVITIES OF THAT NATURE CONTINUE WITHIN THAT CONTRACTING STATE FOR A PERIOD OR PERIODS AGGREGATING MORE THAN 90 DA YS IN ANY FISCAL YEAR; OR (B) ACTIVITIES ARE PERFORMED FOR A RELATED ENTERPRI SE (WITHIN THE MEANING OF ARTICLE 9 OF THIS AGREEMENT) FOR A PERIO D OR PERIODS AGGREGATING MORE THAN 30 DAYS IN ANY FISCAL YEAR. ARTICLE 5(3) IS A SPECIFIC PROVISION DEALING WITH SERVICE PE, ON ACCOUNT OF CONSTRUCTION, INSTALLATION OR ASSEMBL Y PROJECT. IF IT CONTINUES FOR A PERIOD OF MORE THAN 183 DAYS IN ANY FISCAL YEAR. THE INSTALLATION ACTIVITY INCLUDES ERECTION/SETTING UP MACHINE, EQUIPMENTS AND TESTING AND COMMISSIONING OF SUCH MACHINES AND EQUIPMENTS. ITA NO. 1876/MUM/2014 ASSESSMENT YEAR: 2010-11 11 INSTALLATION ALSO RELATES TO A CONSTRUCTION OF A PR OJECT. ARTICLE 5(6) WHEREAS ENVISAGES THAT, IF AN ENTERPRISE IS FURNIS HING SERVICES IN THE CONTRACTING STATE THROUGH ITS EMPLOYEES FOR A PERIO D OF 90 DAYS OR MORE, THEN IT IS DEEMED TO HAVE SERVICE PE, EXCEPT FOR TH E SERVICES REFERRED TO IN PARA 4 AND 5. THE THRESHOLD PERIOD UNDER THIS PA RA IS 90 DAYS AND MORE; OR IF SUCH ACTIVITIES ARE PERFORMED FOR A REL ATED ENTERPRISE, THEN PERIOD OF MORE THAN 30 DAYS. THE ARTICLE 5(6) EXPL ICITLY PROVIDES THAT IT APPLIES TO SERVICES OTHER THAN THOSE COVERED BY A RTICLE 5(4) AND 5(5), HOWEVER, THE SAID ARTICLE IS SILENT AS REGARDS ITS RELATIONSHIP WITH ARTICLE 5(3). THUS, ARTICLE 5(6) COVER VARIOUS SERVICES WHI CH ARE NOT COVERED BY PARA 4 AND 5 OF ARTICLE 5 AND TECHNICAL SERVICES AS DEFINED IN ARTICLE 12. WHAT KIND OF SERVICES HAVE BEEN CONTEMPLATED IN PAR A 6 OF ARTICLE 5 HAVE NOT BEEN ELABORATED IN THE TREATY OR ELSEWHERE . IN CONTRADISTINCTION, PARA 3 OF ARTICLE 5 IS VERY SPEC IFIC AND THEREFORE, SUCH SPECIFIC ACTIVITIES CANNOT BE READ INTO PARA 6 OF A RTICLE 5. THERE CANNOT BE A OVERLAPPING OF ACTIVITIES CARRIED OUT WITHIN T HE AMBIT OF ARTICLE 5(3) AND FURNISHING OF SERVICES AS STATED IN ARTICLE 5(6 ). BOTH SHOULD BE READ INDEPENDENT OF EACH OTHER, OR ELSE THERE WAS NO REQ UIREMENT OF ENSHRINING SEPARATE PROVISIONS. IF THE ACTIVITIES R ELATING TO CONSTRUCTION OR INSTALLATION ARE SPECIFICALLY COVERED UNDER ARTI CLE 5(3), THEN ONE NEED NOT TO GO IN ARTICLE 5(6). THUS, THE ACTIVITY OF TH E ASSESSEE WHICH IS PURELY INSTALLATION SERVICES HAS TO BE SCRUTINIZED UNDER ARTICLE 5(3) ONLY AND NOT WITHIN ARTICLE 5(6). 9. NOW WE HAVE TO SEE, WHETHER THE THRESHOLD THE PE RIOD OF MORE THAN 183 DAYS IN THE FISCAL YEAR HAS CROSSED OR NOT IN THIS CASE. SO FAR AS PROJECT RELATING TO CONTRACT WITH ALLSEAS, THE FIND ING OF THE DRP IS THAT EMPLOYEES OF THE ASSESSEE WHO HAVE STAYED IN INDIA WERE FOR DURATION ITA NO. 1876/MUM/2014 ASSESSMENT YEAR: 2010-11 12 OF MINIMUM 3 DAYS TO 101 DAYS AND ON SECOND TRIP TH E DURATION RANGES FROM 14 DAYS TO 48 DAYS WHICH AGGREGATES TO LESS TH AN 183 DAYS. THE DRP HAS NOT GIVEN ANY FINDING THAT THE PERIOD OF ST AY OF EMPLOYEES HAS CROSSED 183 DAYS. THE ONLY CASE OF THE DRP IS THAT, THE ASSESSEE CONSTITUTE A SERVICE PE WITHIN ARTICLE 5(6) WHICH P RESCRIBED FOR 90 DAYS AND 30 DAYS. THUS, SO FAR AS CONTRACT WITH ALLSEAS, THE SAME DO NOT CONSTITUTE A SERVICE PE AS PERIOD OF STAY IN INDIA IS LESS THAN 183 DAYS. SO FAR AS CONTRACT WITH SWIBER GB GASLIFT PROJECT A LSO, THE NUMBER OF DAYS AS PER THE FINDING OF DRP ITSELF IS MUCH LESS THAN 183 DAYS AND THEREFORE, THIS PROJECT ALSO DO NOT CONSTITUTE SERV ICE PE IN INDIA. 10. NOW COMING TO THE CONTRACT WITH SWIBER BG HYDRA PROJECT, THOUGH THE FINDING OF THE DRP IN PAGE 6 AND 7 IS THAT IT I S LESS THAN 183 DAYS, BUT THE AO IN THE FINAL ASSESSMENT ORDER HAS MENTIO NED THAT IT HAS CROSSED 183 DAYS AS THE CONTRACT WAS SIGNED ON 01.0 8.2009 AND THE PROJECT WAS COMPLETED ON 12.02.2010. IN THIS REGARD THE OBSERVATION OF THE AO IS THAT, DATE OF SIGNING OF THE CONTRACT HAS TO BE RECKONED FOR CALCULATING THE NUMBER OF DAYS. SUCH AN OBSERVATION OF THE LD. AO CANNOT BE UPHELD, BECAUSE AT THE TIME OF THE SIGNIN G OF THE CONTRACT NO ACTUAL ACTIVITY FOR THE INSTALLATION PURPOSE HAD YE T STARTED. THE DATE OF SIGNING OF CONTRACT MERELY SIGNIFIES THAT THE PARTI ES HAVE AGREED TO TERMS AND CONDITIONS FOR CARRYING OUT THE WORK. THE ACTUA L DATE SHOULD BE RECKONED FROM THE PREPARATORY ACTIVITIES LETTING TO THE PERFORMANCE OF THE CONTRACT OF THE CORE BUSINESS ACTIVITY I.E. THE INSTALLATION ACTIVITY IN THE PRESENT CASE. IN SUPPORT OF THIS PROPOSITION, T HE RELIANCE PLACED BY THE LEARNED SENIOR COUNSEL IN THE CASE OF CAL DIVE MARINE CONSTRUCTION (SUPRA) IS CLEARLY APPLICABLE WHEREIN, THE AUTHORIT Y HAD HELD THAT DATE OF SIGNING OF CONTRACT CANNOT BE TREATED AS THE STARTI NG POINT. THUS, THE ITA NO. 1876/MUM/2014 ASSESSMENT YEAR: 2010-11 13 THRESHOLD OF THE TIME LIMIT AS CALCULATED BY THE AO FROM THE DATE OF SIGNING OF AGREEMENT CANNOT BE ACCEPTED. ACCORDING LY, IN THE CASE OF SWIBER BG HYDRA PROJECT ALSO, THE NUMBER OF DAYS IS FAR BELOW THAN 183 DAYS WHICH FACT BEEN ACCEPTED BY THE DRP AND THEREF ORE, THIS PROJECT ALSO DOES NOT CONSTITUTE SERVICE PE IN INDIA. 11. LASTLY, COMING TO THE CONTENTION OF THE DEPARTM ENT THAT ALL THE PROJECTS AND ACTIVITIES UNDERTAKEN BY THE ASSESSEE SHOULD BE CONSIDERED COLLECTIVELY AND IN SUCH A CASE, THE AGGREGATE WORK ING DAYS OF ALL THE PROJECTS HAS FAR EXCEEDED THE THRESHOLD TIME PERIOD OF 183 DAYS. BEFORE US, MR. PARDIWALA IN SUPPORT OF THIS PROPOSITION, H AD RELIED UPON THE DECISION OF SUMITOMO CORPORATION VS. DCIT (SUPRA) A ND ADIT VS. VALENTINE MARITIME(SUPRA). FROM THE RATIO OF THE AB OVE DECISIONS, IT EMERGES THAT THE TEST OF 183 DAYS, THAT IS, THRESHO LD TIME LIMIT APPLIES TO EACH SITE OR THE PROJECT INDEPENDENTLY EXCEPT WHERE SUCH SITES OR PROJECT IS FOR A COHERENT WHOLE, COMMERCIAL AND GEOGRAPHICA LLY. UNCONNECTED OR INDEPENDENT PROJECTS CANNOT BE TAKEN TOGETHER AND S HOULD BE CONSIDERED ON STANDALONE BASIS, EVEN THOUGH THE DIF FERENT CONTRACTS MAY HAVE BEEN ENTERED INTO BY THE SAME CUSTOMER WITH TH E CONTRACTOR. PROFESSOR KLAUS VOGEL IN HIS COMMENTARY ON MODEL T AX CONVENTION, HAS ALSO OPINED THIS VIEW IN THE FOLLOWING MANNER:- THE QUESTION WHETHER THERE IS A PE IN A SPECIFIC C ONTRACTING STATE OR NOT SHOULD BE CONSIDERED SEPARATELY FOR EA CH BUSINESS ACTIVITY PERFORMED IN THAT STATE, I.E. FOR EACH IND IVIDUAL PLACE OF BUSINESS, EXISTING THERE AS WELL. IN THIS CONNECTIO N, THE PLACE WHERE THE INDIVIDUAL ACTIVITY IS PERFORMED MAY VERY WELL BE RELOCATED, FOR INSTANCE, WHERE A ROAD IS BEING CONS TRUCTED IN STAGES. IF, IN CONTRAST, ALL BUILDING SITES MAINTAI NED IN ONE STATE WERE TREATED AS ONE SINGLE PE, THIS WOULD IN EFFECT BE TANTAMOUNT TO APPLYING THE FORCE OF ATTRACTION PRINCIPLE. MORE OVER, THIS WOULD VIOLATE THE PRINCIPLE THAT VARIOUS BUSINESS ACTIVIT Y PERFORMED BY ITA NO. 1876/MUM/2014 ASSESSMENT YEAR: 2010-11 14 ONE AND THE SAME ENTERPRISE, NONE OF WHICH INDIVIDU ALLY CONSTITUTES A PE, CANNOT LEAD TO A PE IF COMBINED. FURTHER IN THE DECISION OF VALENTINE MARITIME, THE TRIBUNAL HELD THAT FOR THE PURPOSE OF COMPUTING THE THRESHOLD TIME LIMIT, WHAT IS TO BE TAKEN INTO ACCOUNT IS THE ACTIVITY OF A FOREIGN ENTERPRIS E ON A PARTICULAR SITE OR A PROJECT AND NOT ON ALL THE ACTIVITIES IN A TAX JU RISDICTION AS A WHOLE. THE EXPRESSION USE IN THE RELEVANT DEFINITION CLAUSE AR E IN SIMILAR AND THERE IS NO SPECIFIC MENTION ABOUT AGGREGATION OF NUMBER OF DAYS SPENT ON VARIOUS SITES, PROJECT OR ACTIVITIES. THE PROPOSITI ON LAID DOWN IN THESE DECISIONS LAY DOWN THE CORRECT VIEW TO WHICH WE ALS O ADHERE TO AND ACCORDINGLY, WE HOLD THAT EACH OF THE PROJECT OF TH E ASSESSEE ARE TO BE VIEWED ON STANDALONE BASIS AND IF THEY ARE CONSIDER ED ON STANDALONE BASIS, THEN AS DISCUSSED ABOVE IN THE PRESENT CASE, NONE OF THE CONTRACT CONSTITUTE A PE IN INDIA. 12. THUS, IN OUR CONCLUSION, THE INSTALLATION ACTIV ITY CARRIED OUT BY THE ASSESSEE IN TERMS OF VARIOUS CONTRACTS IN INDIA SEP ARATELY DO NOT CONSTITUTE PE IN INDIA UNDER ARTICLE 5(3) AS THE TH RESHOLD TIME LIMIT OF 183 DAYS FOR EACH PROJECT IS MUCH LESS. ACCORDINGLY , THE REVENUE FROM ASSESSEES CONTRACT FOR INSTALLATION ACTIVITY IN IN DIA IS NOT TAXABLE IN INDIA, EITHER UNDER ARTICLE 7 OR UNDER THE ACT, AS THE ASSESSEE DOES NOT HAVE PE IN INDIA. 13. IN GROUND NO. 6 ASSESSEE HAS CHALLENGED INCORRE CT COMPUTATION OF REVENUE FROM BG HYDRA CONTRACT WITH SWIBER. THIS GR OUND HAS BECOME PURELY ACADEMIC IN VIEW OF THE FINDING GIVEN ABOVE, HENCE IS TREATED AS INFRUCTUOUS. ITA NO. 1876/MUM/2014 ASSESSMENT YEAR: 2010-11 15 14. IN GROUND NO. 7 THE ASSESSEE HAS CHALLENGED THE INCORRECT COMPUTATION OF TDS, THIS GROUND HAS BEEN STATED TO HAVE BECOME INFRUCTUOUS AS THE AO HAS HOW GRANTED THE CREDIT. 15. IN GROUND NO. 8 TO 10 THE ASSESSEE HAS CHALLENG ED THE LEVY OF INTEREST U/S 234B. THIS GROUND AS ADMITTED BY BOTH THE PARTIES IS COVERED BY THE DECISION OF HONBLE JURISDICTIONAL H IGH COURT IN THE CASE OF NGC REPORTED IN 313 ITR 187, ACCORDINGLY, WE HOL D THAT NO INTEREST U/S 234B IS LEVIABLE IN THE CASE OF THE ASSESSEE. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF JUNE, 2015. SD/- SD/- (R.C. SHARMA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED:12.06.2015 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR L BENCH // TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.