D.C.I.T.-3(1), MUMBAI V. J.RAY MCDERRMOTT EASTERN HEMISPEHERE LTD, MUMBAI

ITA 2089/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8724 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 01-05-2012
• Assessment Year: 1997-1998
• Appeal Filed On: 14-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDER KUMAR
• Assessee Lawyers: PARAG VYAS
• Keywords: Double taxation relief; Permanent establishment

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L, MUMBAI .. , ! '# , $ !, % BEFORE SHRI R.S.SYAL, AM AND SHRI VIJAY PAL RAO, JM ./ ITA NO.2089/MUM/2011 ( $' ( $' ( $' ( $' ( / / / / ASSESSMENT YEAR : 1997-1998) THE DY.COMMISSIONER OF INCOME-TAX CIRCLE 3(1) MUMBAI. M/S.J.RAY MCDERRMOTT EASTERN HEMISPHERE LIMITED C/O.P.W.C.PRIVATE LIMITED PWC HOUSE, 18/A GURU NANAK ROAD (STATION ROAD) MUMBAI 400 050. PAN : JCIT/SR 12-13M. ( )* / // / APPELLANT) ' ' ' ' / VS. ( +,)*/ RESPONDENT) )* - -- - . . . . / APPELLANT BY : SHRI NARENDER KUMAR +,)* - . - . - . - . / RESPONDENT BY : SHRI PARAG VYAS ' - / / / / / DATE OF HEARING : 10.10.2012 01( - / / DATE OF PRONOUNCEMENT : 12.10.2012 !2 !2 !2 !2 / / / / O R D E R PER R.S.SYAL : THIS APPEAL BY THE REVENUE ARISES OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 27.01.2 011 IN RELATION TO THE ASSESSMENT YEAR 1997-1998. 2. THE ONLY GROUND RAISED BY THE REVENUE IS AGAINST THE DIRECTION OF THE LEARNED CIT(A) TO DELETE THE AMOUNT RECEIVED FROM CONTRACT WORK DONE IN INDIA IGNORING THE FACT THAT THE SAID CONTRACT AMOUNT WAS ATTRIBUTABLE TO ITS PERMANENT ESTABLISHMENT (PE ) IN INDIA. ITA NO.2089/MUM/2011. M/S.J RAY MCDERRMOTT EASTERN HEMISPHERE LTD. 2 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSMENT ORDER IN THIS CASE WAS PASSED ON 24.03.2000 DETERMINING T OTAL INCOME AT ` 7.15 CRORE AGAINST THE INCOME DECLARED BY THE ASSES SEE AT ` NIL. THE LEARNED CIT(A) VIDE HIS ORDER DATED 30.03.2004 CAME TO HOLD THAT THE DURATION OF WORK IN INDIA EXCEEDED 9 MONTHS AND THE PERIOD FOR ALL THE CONTRACTS SHOULD BE TAKEN TOGETHER UNDER ARTICL E 5 OF INDO- MAURITIUS TREATY TO CONSTITUTE THE PE OF THE ASSESS EE IN INDIA. THE ACTION OF THE A.O. IN TAXING THE INCOME U/S 44BB WA S CONFIRMED. THE ASSESSEE PREFERRED APPEAL BEFORE THE TRIBUNAL WHICH CAME TO BE DISPOSED OFF VIDE ITS ORDER DATED 22.03.2010 IN ITA NO.8084/MUM/ 2004 (SINCE REPORTED AS (2010) 130 TTJ (MUM.) 121]. THE TRIBUNAL RESTORED THE MATTER TO THE FILE OF THE LEARNED CIT( A) WITH THE FOLLOWING DIRECTIONS :- HAVING HELD THAT AGGREGATION OF TIME SPENT ON EACH OF THE CONTRACTS IN INDIA IS NOT REQUIRED, THIS NEVERT HELESS TO BE EXAMINING WHETHER TIME SPENT ON A SPECIFIC CONTRACT IS MORE THAN NINE MONTHS OR NOT. THE CIT(A ) OUGHT TO HAVE EXAMINED THIS ASPECT OF THE MATTER AN D GIVEN HER FINDINGS ON DURATION OF EACH PROJECT SITE . WE, THEREFORE, CONSIDER IT NECESSARY TO REMIT THE MATTE R FOR THE LIMITED PURPOSES OF ADJUDICATION ON THIS ASPECT OF THE MATTER. EVEN AS WE DO SO, IT IS NECESSARY TO POINT OUT THAT WHAT IS REQUIRED TO BE ASCERTAINED IS THE TIME SPEN T ON THE CONTRACT AND IT IS NOTHING TO DO WITH THE DATES ON WHICH INVOICES ARE RAISED FOR ADVANCES AND FOR DEMONIZATIONS AND SAIL OUTS. AS THE UN MODEL CONVENTION COMMENTARY, INCORPORATING OECD MODEL CONVENTION COMMENTARY, PUTS IT, A SITE EXISTS FROM THE DATE ON WHICH THE CONTRACTOR BEGINS HIS WORK, INCLU DING ANY PREPARATORY WORK, IN THE COUNTRY WHERE THE ITA NO.2089/MUM/2011. M/S.J RAY MCDERRMOTT EASTERN HEMISPHERE LTD. 3 CONSTRUCTION IS TO BE ESTABLISHED, E.G. IF HE INSTA LLS A PLANNING OFFICE FOR THE CONSTRUCTION AND THAT IN GENERAL, IT CONTINUES TO EXIST UNTIL THE WORK IS CO MPLETED OR PERMANENTLY ABANDONED. THESE COMMENTARIES FURTHER ADDED THAT A SITE SHOULD NOT BE REGARDED A S CEASING TO EXIST WHEN WORK IS TEMPORARILY DISCONTIN UED. THESE OBSERVATIONS VERY APPROPRIATELY SET OUT THE R IGHT PRINCIPLES IN THE LIGHT OF WHICH THE DURATION OF A SITE IS TO BE ASCERTAINED FOR THE PURPOSE OF APPLYING THRESHOL D LIMIT OF DURATION TEST. THE DATE ON WHICH INVOICE I S RAISED FOR MOBILIZATION ADVANCE, AS ADOPTED BY THE ASSESSI NG OFFICER IN THIS CASE, IS ALSO NOT DECISIVE FOR THE PURPOSE OF DETERMINING THE DURATION OF THE PE. ON WHAT DATE A REQUISITION IS MADE FOR ADVANCE HAS NOTHING TO DO W ITH ACTUAL WORK, OR INCIDENTAL PREPARATORY WORK PRECEDI NG, AND THUS FORMING INTEGRAL PART OF, THE ACTUAL CORE WORK, AT SITE. SIMILAR SAIL OUT BARGE IS AN ACTIVITY WHIC H TAKES PLACE AFTER THE WORK AT SITE COMES TO AN END. THE D ATE ON WHICH SAIL OUT OF BARGE STARTS OR IS COMPLETED IS ESSENTIALLY A DATE SUBSEQUENT TO ABANDONING THE WOR K AT THE SITE. THIS DATE IS ALSO NOT, THEREFORE, RELEVANT FOR THE PURPOSE OF DECIDING THE DATE ON WHICH ACTIVITY AT SITE COME S TO AN END. IT IS ALSO IMPORTANT TO BEAR IN MIND THE FACT THAT THE DATES OF COMMENCEMENT AND COMPLETION OF WORK SET OU T IN THE CONTRACTS ARE ONLY INDICATIVE OF PLANS AND C ANNOT BE SUBSTITUTED FOR THE ACTUAL DATES OF COMMENCEMENT OF WORK AND COMPLETION OF WORK AS EVIDENCED BY THE MATERIAL ON RECORD. THE WORK SCHEDULE SET OUT IN TH E CONTRACT CANNOT, THEREFORE BE DECISIVE OF DATE OF COMMENCEMENT AND COMPLETION OF WORK AT SITE. WHAT I S ALREADY REQUIRED TO BE SEEING, AS WE HAVE ELABORATE D ABOVE, IS THE DURATION FOR WHICH THE WORK ACTUAL OR PREPARATORY IS CARRIED OUT AT SITE. ITA NO.2089/MUM/2011. M/S.J RAY MCDERRMOTT EASTERN HEMISPHERE LTD. 4 4. THE LEARNED CIT(A), IN THE FRESH PROCEEDINGS PUR SUANT TO THE ORDER PASSED BY THE TRIBUNAL, CAME TO HOLD THAT THE DURATION OF WORK IN INDIA IN RESPECT OF EACH CONTRACT DID NOT EXCEED 9 MONTHS AND HENCE THE ASSESSEE DID NOT HAVE ANY PE IN INDIA. IT IS THIS FINDING OF THE LEARNED CIT(A) AGAINST WHICH THE REVENUE IS AGG RIEVED IN THE PRESENT APPEAL. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD. NO MATERIAL HAS BEEN PLACED ON RECORD TO INDICATE THAT THE EARLIER ORDER PASSED BY THE TRIBUNAL IN AS SESSEES OWN CASE ON 22.03.2010 WAS ASSAILED BEFORE THE HONBLE BOMBAY H IGH COURT. IT SHOWS THAT THE SAID ORDER HAS ATTAINED FINALITY. WE WILL, THEREFORE, PROCEED TO EXAMINE THE IMPLEMENTATION OF THE DIRECT ION GIVEN TO THE LEARNED CIT(A) BY THE TRIBUNAL IN ITS ORDER. IT CA N BE OBSERVED FROM THE AFORE-QUOTED DIRECTION OF THE TRIBUNAL THAT THE LEARNED FIRST APPELLATE AUTHORITY WAS REQUIRED TO EXAMINE AND DET ERMINE THE DURATION IN RESPECT OF THREE CONTRACTS INDEPENDENTL Y AND NOT ON A CONSOLIDATED BASIS. IT WAS FURTHER DIRECTED TO COU NT THE PERIOD OF SAY IN INDIA BY CONSIDERING THE ACTUAL DATE OF COMMENCE MENT AND COMPLETION OF THE CONTRACTS AND NOT WHAT HAS BEEN M ENTIONED IN THE AGREEMENTS. THE TRIBUNAL FURTHER HELD THAT THE DAT E ON WHICH INVOICE WAS RAISED IS NOT DECISIVE FOR THE PURPOSE OF DETER MINING THE DURATION OF THE PE AND SIMILARLY ON WHAT DATE REQUISITION WA S MADE FOR ADVANCE HAS ALSO NOTHING TO DO WITH THE ACTUAL WORK AT SITE. THE TRIBUNAL ALSO HELD THAT A SITE EXISTS FROM THE DATE ON WHICH THE ITA NO.2089/MUM/2011. M/S.J RAY MCDERRMOTT EASTERN HEMISPHERE LTD. 5 CONTRACTOR BEGINS HIS WORK, INCLUDING ANY PREPARATO RY WORK, IN THE COUNTRY WHERE THE CONSTRUCTION IS TO BE ESTABLISHED AND CONTINUES TO EXIST UNTIL THE WORK IS COMPLETED OR PERMANENTLY AB ANDONED. FURTHER THE DATE ON WHICH SAIL OUT OF BARGE STARTS OR IS CO MPLETED IS ESSENTIALLY A DATE CONSEQUENT TO ABANDONING THE WORK AT SITE. T HE LEARNED CIT(A) HAS TABULATED THE ACTUAL DATE OF COMMENCEMENT AND C OMPLETION ALONG WITH DURATION IN RESPECT OF THREE CONTRACTS DISTINC TLY AS UNDER:- CONTRACT NO. CONTRACT NAME ACTUAL DATE OF COMMENCEMENT ACTUAL DATE OF COMPLETION DURATION 04507 ENRON OIL & GAS 12 MARCH, 1996 22 NOVEMBER 19 96 8 MONTHS 11 DAYS 04406 HEERMAC 12 NOVEMBER, 1996 22 NOVEMBER, 1996 10 DAYS 04522 ENRON OIL & GAS 05 FEBRUARY 1997 18 MAY 1997 3 MONTHS 14 DAYS 6. FROM THE ABOVE CHART IT IS APPARENT INSOFAR AS F IRST CONTRACT IS CONCERNED, THE DURATION IS 8 MONTHS 11 DAYS. THE L EARNED CIT(A) HAS RECORDED A CATEGORICAL FINDING THAT NO PREPARATORY WORK WAS DONE BY THE ASSESSEE IN THIS REGARD AS THE CONSTRUCTION DES IGNS WERE PROVIDED BY THE THIRD PARTY THROUGH INDEPENDENT CONTRACTS. T HE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT CONTROVERT TH E FINDING GIVEN BY THE LEARNED CIT(A) IN THIS REGARD. THUS IT BECOM ES APPARENT THAT THE DURATION IN RESPECT OF FIRST CONTRACT IS ONLY 8 MONTHS AND 11 DAYS, WHICH IS LESS THAN 9 MONTHS AS PER ARTICLE 5 OF THE INDO-MAURITIUS DTAA TO CONSTITUTE PERMANENT ESTABLISHMENT. THE DUR ATION OF SECOND CONTRACT AS PER THE ABOVE TABLE IS ONLY 10 DAYS AND THE THIRD CONTRACT IS 3 MONTHS AND 14 DAYS. PATENTLY SUCH DURATION IS LESS THAN THE ITA NO.2089/MUM/2011. M/S.J RAY MCDERRMOTT EASTERN HEMISPHERE LTD. 6 PRESCRIBED PERIOD OF 9 MONTHS. NO MATERIAL HAS BEEN PLACED ON RECORD BY THE LD. DR TO SHOW THAT THERE IS ANY INFIRMITY I N THE IMPUGNED ORDER IN RECORDING THE STARTING OR COMPLETION DATES OR THE COMPUTATION OF DURATION IN RESPECT OF SUCH TWO CONTRACTS. SINCE THE DURATION IN BOTH THESE CONTRACTS IS LESS THAN NINE MONTHS, OBVI OUSLY THE MANDATE OF ARTICLE 5 CAN NOT BE ACTIVATED. 7. HOWEVER, THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTENDED THAT THE LEARNED CIT(A) ERRED IN CONSIDERING THE DA TES OF COMMENCEMENT AND ACTUAL DATE OF COMPLETION BY ENTER TAINING CERTAIN FRESH MATERIAL FOR THE FIRST TIME WITHOUT CONFRONTI NG IT TO THE ASSESSING OFFICER. IT WAS THEREFORE, REQUESTED THA T THE MATTER MAY BE SENT BACK TO THE AO FOR VERIFICATION OF SUCH FACTS. IN RESPONSE TO IT, THE LEARNED AR SUBMITTED THAT NO ADDITIONAL MATERIA L WORTH THE NAME WAS PLACED BEFORE THE LEARNED CIT(A). HE DREW OUR ATTENTION TOWARDS THE ORDER PASSED BY THE LEARNED CIT(A) IN T HE FIRST ROUND DATED 30.03.2004 IN WHICH THERE IS A REFERENCE TO T HE DURATION OF WORK IN RESPECT OF THESE THREE CONTRACTS INDEPENDENTLY. THIS CONTENTION OF THE LD. DR IS NOT CAPABLE OF ACCEPTANCE. BE THAT A S IT MAY, THERE IS NO GROUND IN THE APPEAL ABOUT THE VIOLATION OF RULE 46 A OF THE I.T RULES, 1962. 8. FROM THE ABOVE DISCUSSION IT FOLLOWS THAT THE DI RECTION GIVEN BY THE TRIBUNAL IN THE FIRST ROUND WAS CONFINED TO EXA MINING THE DURATION IN RESPECT OF EACH CONTRACT FOR DETERMINING WHETHER OR NOT ANY PE WAS ITA NO.2089/MUM/2011. M/S.J RAY MCDERRMOTT EASTERN HEMISPHERE LTD. 7 CONSTITUTED IN TERMS OF ARTICLE 5 OF THE DTAA BETWE EN INDIA AND MAURITIUS. SUCH DIRECTION HAS BEEN ACTED UPON BY TH E LEARNED CIT(A), WHO AFTER EXAMINATION OF THE RELEVANT MATERIAL CAME TO HOLD THAT FOR ALL THE THREE CONTRACTS, THE DURATION IS LESS THAN 9 MONTHS. ONCE IT IS FOUND THAT THE DURATION IN RESPECT OF EACH CONTRACT IS LESS THAN 9 MONTHS, IT WILL NOT CONSTITUTE PE IN TERMS OF ARTIC LE 5 OF THE DTAA WITH MAURITIUS. IN THE ABSENCE OF ANY PE THERE CANN OT BE ANY QUESTION OF TAXABILITY OF BUSINESS PROFIT AS PER ARTICLE 7. WE, THEREFORE, UPHOLD THE IMPUGNED ORDER. 9. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED ON THIS 12 TH DAY OF OCTOBER, 2012. !2 - 01( 3!'4 1 - 5 SD/- SD/- (VIJAY PAL RAO) (R.S.SYAL) $ ! $ ! $ ! $ ! / JUDICIAL MEMBER ! ! ! ! / ACCOUNTANT MEMBER MUMBAI ; 3!' DATED : OCTOBER, 2012. DEVDAS* !2 - +$/6' 7'(/ !2 - +$/6' 7'(/ !2 - +$/6' 7'(/ !2 - +$/6' 7'(// COPY OF THE ORDER FORWARDED TO : 1. )* / THE APPELLANT 2. +,)* / THE RESPONDENT. 3. 8 () / THE CIT(A)-X, MUMBAI. 4. 8 / CIT 5. 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