M/s. KSS Engineering Ltd., Mumbai V. ACIT, New Delhi

ITA 1992/DEL/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97571 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 20-10-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 06-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Double taxation relief; Permanent establishment
• Section: 143(3); 5(2)

Judgement Text

1 ITA NO. 19 92/DEL/2015 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH:D NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER & SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO. 1992/DEL/2015 (ASSESSMENT YEAR-2011- 12) KSS ENGINEERING LTD., C/O SRBC & ASSOCIATES, CAS, 14 TH FLOOR, THE RUBY, 29, SENAPATI BAPAT MARG, DADAR (W), MUMBAI. AAECK2051J VS ACIT, CIRCLE 2(1)(2), INTERNATIONAL TAXATION, 3 RD FLOOR, ROOM NO. 310, BLOCK E-2, PRATYAKASH KAR BHAVAN, CIVIC CENTRE, J.L. NEHRU MARG, NEW DELHI. APPELLANT BY SHRI NAGESHWAR RAO, AR SHRI SHAILESH KUMAR, ADV. RESPONDENT BY SHRI ANUJ ARORA, CIT DR ORDER PER BEENA PILLAI, JUDICIAL MEMBER : THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDER PASSED BY ACIT (INTERNATIONAL TAXATION) 2(1)( 2), NEW DELHI U/S 143(3) READ WITH SECTION 144C OF THE I.T. ACT, VIDE ORDER DATED 07.01.2015. DATE OF HEARING 20.10.2015 DATE OF PRONOUNCEMENT 21.10.2015 2 ITA NO. 19 92/DEL/2015 2. BRIEF FACTS OF THE CASE AS RECORDED BY THE LD. A SSESSING OFFICER ARE AS UNDER: RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 29/09 /2012 DECLARING TOTAL INCOME AS NIL. THE RETURN WAS SELECTED FOR S CRUTINY ASSESSMENT. DURING THE COURSE OF THE ASSESSMENT PR OCEEDINGS, THE ASSESSEE HAD SUBMITTED THAT THE ASSESSEE COMPANY IS INCORPORATED IN MALAYSIA. DURING THE RELEVANT ASSESSMENT YEAR T HE ASSESSEE WAS AWARDED A CONTRACT BY CONSORTIUM OF VALENTINE MARIT IME LIMITED (VML) AND VALENTINE MARITIME MAURITIUS LIMITED (VMM L) FOR INSTALLATION OF PIPELINE CROSSING AND FREE SPAN COR RECTIONS FOR MHN PIPELINE. THE LD. ASSESSING OFFICER NOTED THAT THE MAJOR SCOPE OF WORK OF THE ASSESSEE INVOLVED; PROVIDING APPROPRIATE RESOURCES AND MATERIAL TO PER FORM THE WORK, PERFORMING PIPELINE CROSSING, INSTALLING APPROXIMATELY 120 SUBMARINE PIPELINE CRO SSINGS AND 5 SUBMARINE PIPELINE FREE SPAN CORRECTIONS, PERFORMING AS-BUILT POST INSTALLATION; SUBMITTING AS-BUILT DRAWINGS OF THE COMPLETED INSTA LLATION FOR EACH CROSSING LOCATION WITH VIDEO RECORDINGS. THE SAID PROJECT STARTED ON 09/02/2011 AND THE ASSE SSEE HAD EARNED REVENUES AMOUNTING TO RS. 19,21,43,700/- FR OM THE SAID PROJECT. 3. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS REQUIRED TO SHOW CAUSE AS TO WHY THE RECEIPTS D URING THE YEAR SHOULD NOT BE TREATED AS FEES FOR TECHNICAL SERVICE S (FTS) UNDER THE 3 ITA NO. 19 92/DEL/2015 INCOME TAX ACT, 1961. IT WAS SUBMITTED BY THE ASSE SSEE AT THE TIME OF ASSESSMENT PROCEEDINGS THAT THE CONTRACT WAS FOR EXECUTION OF THE WORKS CONTRACT AND NOT FOR RENDERING TECHNICAL SERV ICES. THE ASSESSEE SUBMITTED BEFORE THE LD. ASSESSING OFFICER THAT INCOME RECEIVED FOR EXECUTING WORKS CONTRACT SHOULD NOT BE TREATED AS FTS. THE ASSESSEE SUBMITTED THAT ITS INCOME IS NOT CHEAR GABLE TO TAX IN INDIA AS IT HAS NO PERMANENT ESTABLISHMENT(PE) IN I NDIA IN ACCORDANCE WITH THE PROVISIONS OF ARTICLE 5(2)(J) O F THE INDIA- MALASIA TAX TREATY. THE LD.AO WORKED OUT THE ASSESSEES INCOME AT RS.1, 92,14,370/-, BEING 10% OF THE GROSS RECEIPTS U/S.44BB AND TAXED THE SAME BY HOLDING AS UNDER; 4. THE SUBMISSIONS FILED BY THE ASSESSEE ARE DULY C ONSIDERED. THE ASSESSEE HAS UNDERTAKEN A CONTRACT FOR INSTILLA TION OF SUBMARINE PIPELINE CROSSINGS AND SUBMARINE PIPELINE FREE SPAN CORRECTIONS. THIS CONTRACT IS EXECUTED IN INDIA. TH E MAIN CONTRACT WAS AWARDED BY AN INDIAN CONCERN I.E. ONGC, WHICH I S THE PRIMARY SOURCE OF RECEIPTS OF ASSESSEE. THIS ESTABL ISH A CLEARCUT BUSINESS CONNECTION OF THE ASSESSEE IN INDIA AS PER SECTION 9(1) (I) OF THE ACT. THE ASSESSEE IS CARRYING OUT ITS ACTIVI TIES THROUGH A BARGE ON WHICH THE CREW OF THE ASSESSEE IS SITUATED . ARTICLE 5(1) OF THE INDIA-MALASIA DTAA PROVIDES THAT THE PERMANENT ESTABLISHMENT MEANS A FIXED PLACE OF BUSINESS OF A N ENTERPRISE IS WHOLLY OR PARTLY CARRIED ON. ACCORDINGLY TO CONSTIT UTE A PE, THE ASSESSEE SHOULD HAVE A FIXED PLACE AVAILABLE TO IT FOR PERFORMING ITS BUSINESS ACTIVITIES AND IT IS NOT NECESSARY THAT F IXED PLACE MEANS 4 ITA NO. 19 92/DEL/2015 A PLACE FIXED TO THE GROUND. HENCE, IF A BUSINESS I S CARRIED OUT IN A SPECIFIC LOCATION THROUGH A SHIP, THEN SUCH SHIP WI LL ALSO BE TREATED AS PERMANENT ESTABLISHMENT. ACCORDINGLY THE BARGE OF THE ASSESSEE FROM WHICH IT CARRIES ON ITS BUSINESS ACTI VITIES SHALL CONSTITURE PE OF THE ASSESSEE UNDER ARTICLE 5(1) OF THE INDIA- MALSIA DTAA. 4. AGGRIEVED BY THE DRAFT ASSESSMENT ORDER THE ASSE SSEE FILED ITS OBJECTION BEFORE THE DRP. BEFORE THE DRP, THE ASSESSEE PLACED RELIANCE ON THE ROLLING OF GLOBAL INDUSTRIES ASIA PACIFIC PVT. LIMITED (AAR NO. 936/2 010), WHEREIN IT WAS HELD THAT EVEN IF THE PART OF THE INCOME OF THE ASSESSEE FALLS UNDER ROYALTIES FEES FOR TECHNICAL SERVICES, THER E IS NO SCOPE TO ASSESS SUCH RECEIPTS UNDER THESE HEADS, ONCE IT IS HELD THAT THE INCOME IS FROM ITS OIL EXPLORATION AND PRODUCTION A CTIVITIES AS ENVISAGED U/S 44BB. THE ASSESSEE CONTENDED BEFORE THE DRP THAT THE PROV ISIONS OF ARTICLE 5(2)(J) BEING SPECIFIC PROVISION WILL HAVE AN OVERR IDING EFFECT OVER THE GENERAL PROVISIONS CONTAINED IN ARTICLE 5(1). HOWE VER, THE LD. ASSESSING OFFICER HELD THAT THE PE OF THE ASSESSEE CAME INTO EXISTENCE UPON THE EVENT OF STARTING WORK AND THE A SSESSEES CASE DOES NOT FALL IN THE PURVIEW OF ARTICLE 5(2)(J). THE LD. DRP HELD AS UNDER: 5.4 VARIOUS CLAUSES OF THE SUBCONTRACT SHOW THAT T HE SUBCONTRACT IS INDIVISIBLE WITH THE MAIN CONTRACT B ETWEEN ONGC AND THE CONSORTIUM OF VML AND VMML AND THE REVENUE RECEIVED BY THE ASSESSEE IN PURSUANCE OF SU CH SUBCONTRACT WAS TAXABLE IN INDIA RIGHT FROM THE BEG INNING TO THE EXTENT PROFIT ATTRIBUTABLE TO SUCH PE. IN THE CASE OF THE 5 ITA NO. 19 92/DEL/2015 ASSESSEE, THE PE WAS ESTABLISHED UNDER ARTICLE 5(1) , THEREFORE, ONE DOES NOT NEED TO GO TO THE PROVISION S OF ARTICLE 5(2) AS THE ASSESSEE FAILS TO ESTABLISH THAT WHEN T HE SHIP/BARGE WAS BROUGHT INTO INDIA AND WHEN THE SAME DEPARTED FROM INDIA WITH THE HELP OF CERTIFICATE OF COMPETENT AUTHORITIES INCLUDING CUSTOM AUTHORITY. THEREFORE, IT CAN BE SAID THAT ON WHICH SPECIFIC DAY THE ASSESSEE CAME T O INDIA AND LEFT INDIA. TO EXAMINE THE CONTENTION OF THE A SSESSEE, IT IS NECESSARY TO DWELL UPON THE TERMS OF THE CONTRAC T TO FIND OUT WHETHER THE CONTRACT WAS DIVISIBLE ONE. THE NA TURE OF WORK OF THE ASSESSEE STARTED FROM THE SURVEY TO BE DONE WITH REGARD TO THE ACTIVITY OF PRE-ENGINEERING, PRE AND POST INSTALLATION AND IT INCLUDE DESIGN, ENGINEERING, PR OCUREMENT, FABRICATION, AND CORROSION AND WEIGHT COATING, LOAD OUT, THE DOWN/SEA FASTENING, TOW OUT/SAIL OUT, TRANSPORTATIO N, INSTALLATION, MODIFICATIONS AT EXISTING FACILITIES, HOOK UP TESTING, ETC. THUS, IT CAN BE SEEN THAT THE CONTRAC T OBTAINED BY THE CONSORTIUM OF VML AND VMML FROM ONGC AND THEREAFTER SUBCONTRACT BY THE ASSESSEE IS A COMPOSI TE CONTRACT STARTING RIGHT FROM SURVEYS OF PRE-ENGINEE RING, PRE- CONSTRUCTION/PRE-INSTALLATION, DESIGN ENGINEERING PROCUREMENT ETC. TILL THE STARTUP AND COMMISSIONING OF THE ENTIRE FACILITIES. EVEN POST-INSTALLATION, THE ASS ESSEE IS REQUIRED TO DO ALL WORK COVERED BY WARRANTEE AND FA LLING IN WARRANTEE PERIOD. 5. WE HAVE GONE THROUGH THE RECORDS AND THE ORDERS PASSED BY THE AUTHORITIES BELOW. THE ASSESSEE BROUGHT TO OUR NOTICE THAT, THE DRP HA S HELD IN PARA 5.3 OF THEIR ORDER AS UNDER; FROM THE ABOVE SUBMISSION OF THE ASSESSEE, IT IS C LEAR THAT THE ASSESSEE HAS ACCEPTED THAT IT HAS PE AS PER THE PRO VISIONS OF ARTICLE 5(1); HOWEVER, IT HAS NO PE AS PER THE PROVISIONS O F ARTICLE 5(2)(J). THE ASSESSEE SUBMITS THAT THERE WAS NO SUCH ADMISS ION ON BEHALF OF THE ASSESSEE. 6 ITA NO. 19 92/DEL/2015 THE PRIMA FACIE ISSUE THAT ARISES IS AS TO WHETHER THE ASSESSEE COULD BE CONSTITUTED AS A PE IN INDIA. 6. THE DRP IN PARA 5.4 OF THEIR ORDER, MAKES A CATE GORICAL FINDING THAT THE ASSESSEE FAILED TO ESTABLISH AS TO WHEN TH E SHIP/BARGE WAS BROUGHT INTO INDIA AND WHEN THE SAME DEPARTED FROM INDIA, WHEN THE HELP OF CERTIFICATE OF COMPETENT AUTHORITIES IN CLUDING CUSTOM AUTHORITY, VIDE PARA 5.4 OF THEIR ORDER. 7. IN LIEU OF THE ABOVE FINDING OF DRP, THE LD. AR, HAS FILED DOCUMENTS UNDER RULE 29 OF THE ACT. IN OUR CONSIDER ED OPINION, THESE DOCUMENTS WOULD BE NECESSARILY TO BE ADJUDICA TED UPON, TO ESTABLISH AS TO WHETHER, THE ASSESSEE IS A PE IN IN DIA OR NOT. AS THESE DOCUMENTS HAS NOT BEEN FILED BEFORE THE DR P, OR BEFORE LD. AO, THEY HAVE NOT HAD AN OPPORTUNITY TO VERIFY AND ADJUDICATE UPON THE SAME. WE THEREFORE SET ASIDE THE ISSUE TO THE LD. ASSESSING OFFICER DE NOVO FOR FRESH ADJUDICATION, WITH ALL OBJECTIONS AND CONTENTIONS KEPT OPEN FOR BOTH THE PARTIES. IN LIEU OF THE ABOVE DISCUSSION, WE SET ASIDE THE M ATTER BACK TO THE FILES OF THE LD. ASSESSING OFFICER. 8. IN THE RESULT, THE APPEAL STANDS STATISTICALLY A LLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 21/10/ 2015 SD/- SD/- (N.K. SAINI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 21/10/2015 *KAVITA, P.S. COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 7 ITA NO. 19 92/DEL/2015 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 20.10.2015 2. DRAFT PLACED BEFORE AUTHOR 20.10.2015 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 20.10.2015 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 20.10.2015 5. APPROVED DRAFT COMES TO THE SR.PS/PS 20.10.2015 6. KEPT FOR PRONOUNCEMENT ON 21.10.2015 7. FILE SENT TO THE BENCH CLERK 26.10.2015 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.