Appeal Details
Counselvise Citation
[2011] 140 COUNSELVISE.COM (IT) 52595 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
9 month(s) 5 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-08-2011
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
G
Assessment Year
2007-2008
Appeal Filed On
24-11-2010
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRESI DENT AND SHRI I.P. BANSAL, JUDICIAL MEMBER ITA NO.5237/DEL/2010 ASSESSMENT YEAR : 2007-08 SAMSUNG HEAVY INDUSTRIES CO. LTD., C/O VAISH ASSOCIATES, FLAT NO.5,10, HAILEY ROAD, NEW DELHI. PAN : AAJCS7859K VS. ADIT (INTERNATIONAL TAXATION) DEHRADUN. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY VOHRA, SHRI RUPESH JAIN & SHRI SACHIT JOLLY, ADVOCATES REVENUE BY : SHRI ASHWANI KUMAR MAHAJAN, CIT/DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DIRECTED AGAINST THE ORDER PASSED BY THE ASSESSING OFFICER DATED 25 TH OCTOBER, 2010 U/S 143(3)/144C(13) OF THE INCOME TAX ACT (THE ACT). T HE IMPUGNED ASSESSMENT ORDER HAS BEEN PASSED BY THE ASSESSING OFFICER AS PE R ORDER PASSED BY DISPUTE RESOLUTION PANEL-II, DELHI, DAT ED 30 TH SEPTEMBER, 2010 FOR ASSESSMENT YEAR 2007-08. GROUNDS OF APPEAL READ AS UNDER:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE ORDER PASSED BY THE ASSESSING OFFICER (THE LD. AO ) UNDER SECTION 143(3) READ WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (THE ACT) WITHOUT AFFORDING ADEQUATE OPPORTUNITY OF BEIN G HEARD TO THE APPELLANT, IS IN VIOLATION OF PRINCIPLES OF NATUR AL JUSTICE AND IS, THEREFORE, BAD IN LAW AND VOID AB-INITIO. ITA NO.5237/DEL/2010 2 1.1 THAT THE AO/DRP ERRED ON FACTS AND IN LAW IN NOT PR OVIDING AN OPPORTUNITY TO THE APPELLANT TO CROSS EXAMINE THE OFFIC ER OF OIL AND NATURAL GAS CORPORATION LIMITED (ONGC) ON THE BAS IS OF WHOSE OPINION ADVERSE INFERENCES AGAINST THE APPELLAN T HAVE BEEN DRAWN AND WITHOUT CONFRONTING THE DATA RELIED UPON FOR ARRIVING AT THE ESTIMATED PROFIT FROM OFFSHORE OPERATIONS . 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. AO ERRED IN COMPLETING THE ASSESSMENT AT AN INCO ME RS. 28,12,60,801/- AS AGAINST LOSS OF RS. 23,50,939/- RE TURNED BY THE APPELLANT HOLDING THAT THE APPELLANT WAS LIABLE TO TAX IN INDIA, IN RESPECT OF THE ACTIVITY PERFORMED IN INDIA AND OUTSIDE I NDIA DURING THE RELEVANT PREVIOUS YEAR. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. AO ERRED IN HOLDING THAT THE APPELLANT HAD A FIX ED PLACE PERMANENT ESTABLISHMENT (PE) IN INDIA UNDER ARTICLE 5 OF THE DOUBLE TAX AVOIDANCE AGREEMENT BETWEEN INDIA AND KORE A (THE TREATY), IN THE FORM OF PROJECT OFFICE IN INDIA. 3.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. AO ERRED IN ALLEGING THAT THE PROFIT OFFICE WAS INVOLVED IN MARKETING AND NEGOTIATING TENDER BIDS, NOT APPRECIATING TH AT THE PROFIT OFFICE NAME INTO EXISTENCE POST COMPLETION OF PRE LIMINARY ACTIVITIES LIKE BIDDING FOR THE CONTRACT, NOTIFICATION OF AWARD OF CONTACT, SIGNING OF THE CONTRACT. 3.2 WITHOUT PREJUDICE THAT THE AO ERRED ON THE FACTS AND I N LAW IN NOT APPRECIATING THAT THE ACTIVITIES CARRIED OUT BY THE PRO JECT OFFICE IN INDIA WERE MERELY PREPARATORY AND AUXILIAR Y AS REFERRED TO IN ARTICLE 5(4) OF THE TREATY AND DID NOT LEAD TO ESTAB LISHMENT OF FIXED PLACED PE IN INDIA. 3.3 THAT THE LD. AO ERRED ON FACTS AND IN LAW IN NOT AP PRECIATING THAT THERE COULD ONLY BE, IF AT ALL, INSTALLATION/ASSEMBL Y PE AS MENTIONED IN ARTICLE 5(3) OF THE TREATY AS OPPOSED TO FI XED PLACE PE. 3.4 THAT THE LD. AO ERRED ON FACTS AND IN LAW IN FURTHE R NOT APPRECIATING THAT NO SUCH PE WAS ESTABLISHED IN THE RELE VANT PREVIOUS YEAR AS NO ACTIVITY LEADING TO ESTABLISHMENT OF INSTALLATION/ASSEMBLY PE TOOK PLACE IN INDIA DURING THE RELEVANT PREVIOUS YEAR. 3.5 THAT THE LD. AO ERRED IN IGNORING THE FACT THAT ACTIVI TIES LIKE BIDDING FOR THE CONTRACT, NOTIFICATION OF AWARD OF CONTAC T, SIGNING OF THE CONTRACT AND PRE-BIDDING SURVEYS, BEING EVENTS E ARLIER TO THE EXECUTION OF THE CONTRACT IN INDIA, COULD NOT LEAD TO ESTABLISHMENT OF INSTALLATION PE IN INDIA. ITA NO.5237/DEL/2010 3 3.6 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED IN HOLDING THAT THE PRE-ENGINEERING AN D PRE- CONSTRUCTION SURVEY LEAD TO ESTABLISHMENT OF PE EVEN THOU GH THESE ACTIVITIES WEE CARRIED OUT BY INDEPENDENT SUBCONTRA CTORS. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. AO ERRED IN HOLDING THAT THE CONTRACT WITH ONGC WA S NOT DIVISIBLE IN TERMS OF ACTIVITIES TO BE PERFORMED IN AND OUTSIDE INDIA, AND, THEREFORE, THE PROFIT ARISING TO THE APPELLA NT FROM THE ACTIVITIES PERFORMED OUTSIDE INDIA (DESIGNING, ENGINEE RING AND MATERIAL PROCUREMENT) WAS CHARGEABLE TO TAX IN INDIA. 4.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED IN HOLDING THAT THE CONSIDERATION UNDER THE CONTRACT FOR THE WORK CARRIED OUT IN INDIA AND OUTSIDE I NDIA WAS NEITHER IDENTIFIABLE NOR DIVISIBLE NOT APPRECIATING THAT THE CONTRACTING PARTIES HAD THEMSELVES IDENTIFIED AND ALLOCA TED THE CONSIDERATION IN THE CONTRACT ITSELF HAVING REGARD TO THE LOCATION OF WORK. 4.2 THAT THE LD. AO ERRED ON FACTS AND IN LAW IN IGNOR ING THE PRINCIPLES OF TAXATION LAID DOWN BY THE HONBLE APEX C OURT IN THE CASE OF ISHIKAWAJMA HARIMAS : 288 ITR 408 (SC) IN RESPECT OF TAXABILITY OF TURNKEY CONTRACT WHERE DIFFERENT PARTS OF THE CONTRACT ARE TO BE CARRIED OUT IN DIFFERENT TAX JURISDICTIONS. 5. WITHOUT PREJUDICE EVEN IF IT IS ASSUMED THAT THE CONTRA CT WAS NOT DIVISBLE AND THE APPELLANT HAD A PE IN INDIA, NO INCOME ON ACCOUNT OF OFFSHORE ACTIVITIES, I.E., THE OPERATIONS CAR RIED OUT OUTSIDE INDIA (VIZ., DESIGNING, ENGINEERING AND MATER IAL PROCUREMENT ACTIVITIES) WAS ATTRIBUTABLE TO THE ALLEGED PE, AS THE OFFSHORE ACTIVITY WAS CARRIED OUT OUTSIDE INDIA AND THE ALLEGED PE HAD NO ROLE TO PLAY IN SUCH ACTIVITY. 5.1 THAT THE LD. AO ERRED IN HOLDING THAT REVENUE FROM OPERATION OF DESIGN, ENGINEERING AND MATERIAL PROCURE MENT OUTSIDE INDIA WAS TAXABLE, EVEN THOUGH THERE WAS NO ALL EGATION THAT THE PRICE AT WHICH BILLING WAS DONE WAS NOT AT ARMS LENGTH. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. AO ERRED IN NOT APPRECIATING THAT EVEN IF THE APPELLANT IS ASSUME D TO HAVE PE IN INDIA, SINCE THE APPELLANT INCURRED OVERALL LOS S ON THE AFORESAID PROJECT, BOTH IN RESPECT OF OPERATIONS IN IND IA AND OUTSIDE INDIA, THERE WAS, IN ANY CASE, NO INCOME LIAB LE TO TAX IN INDIA IN RELATION TO THE SAID PROJECT. 7. WITHOUT PREJUDICE TO THE SUBMISSION THAT NO INCOME IS LIABLE TO TAX IN INDIA, THE LD. AO/DRP ERRED IN DISREGARDING THE PROFIT AND LOSS STATEMENT FILED BY THE APPELLANT IN RESPECT OF THE OFFSHORE ACTIVITIES AND IN E STIMATING, ITA NO.5237/DEL/2010 4 ON AD HOC BASIS, PROFITS FROM SUCH ACTIVITIES @ 25% OF REVENUES DURING THE RELEVANT PREVIOUS YEAR. IN NOT ALLOWING DEDUCTION FOR DIRECT AND INDIRECT EXPEN SES AND SELLING AND ADMINISTRATIVE EXPENSES INCURRED BY THE AP PELLANT OUTSIDE INDIA IN RELATION TO THE OFFSHORE ACTIVITIES, ALL EGING THAT THE SAME HAD NOT BEEN SUBSTANTIATED BY THE APPELLANT AND TH E PROFITABILITY STATEMENT WAS NOT AUTHENTICATED BY THE APPELLAN T. IN NOT ALLOWING EXPENSES RELATING TO SUB-CONTRACTORS CO ST ON THE GROUND THAT NO TAX HAD BEEN DEDUCTED THEREFROM. IN MAKING REFERENCE TO THE MEAN NET PROFIT RATE OF COMPA NIES NAMELY, ARTEFACT PROJECTS LIMITED, ENGINEERS INDIA LI MITED, EZYONE HOLDINGS LIMITED AND DOLPHIN OFFSHORES ENTER PRISES INDIA LIMITED, WITHOUT CONFRONTING THE SAME TO THE APPELL ANT, AND ON THAT BASIS APPROVING THE RATE OF 25% APPLIED BY THE AO TO THE CONTRACT RECEIPTS TO ARRIVE AT THE INCOME FROM THE OFFSHORE ACTIVITIES. IN IGNORING THE GLOBAL PROFIT AND LOSS ACCOUNT FILED B Y THE APPELLANT WHICH DEMONSTRATES THE WORLDWIDE PROFIT MARGI N EARNED BY THE APPELLANT AND IN NOT APPRECIATING THAT IN TE RMS OF RULE 10 OF THE INCOME-TAX RULES THE SAID MARGIN COU LD AT MOST BE APPLIED TO SALES MADE TO ONGC TO THE EXTENT ATTRIBUTABLE TO THE PE, TO DETERMINE THE INCOME OF THE APPELLANT LIABLE TO TAX IN INDIA. 8. THAT THE LD. AO ERRED IN GIVING LOWER CREDIT OF THE TAX DEDUCTED AT SOURCE AS CLAIMED BY THE APPELLANT IN ITS RETURN OF I NCOME. 9. THAT THE LD. AO ERRED IN CHARGING INTEREST U/S 234B OF THE ACT, NOT APPRECIATING THAT SINCE THE ENTIRE INCOME OF THE APPEL LANT WAS SUBJECT TO TAX WITHHOLDING, IF SUCH INCOME WERE TO BE HE LD CHARGEABLE TO TAX IN INDIA, THE APPELLANT WAS NOT LIABLE TO PAY ADVANCE TAX. 10. THAT THE LD. AO ERRED ON FACTS AND IN LAW IN CHARG ING INTEREST U/S 234D OF THE ACT. THE ABOVE GROUNDS OF APPEALS ARE WITHOUT PREJUDICE TO EACH OTHER. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ALL OR ANY OBJECTIONS HEREIN OR ADD ANY FURTHER GROUN DS AS MAY BE CONSIDERED NECESSARY EITHER BEFORE OR DURING THE HEAR ING OF THESE OBJECTIONS. 2. THOUGH, IN THE PRESENT APPEAL VARIOUS ISSUES ARE RAISE D, BUT, DURING THE COURSE OF HEARING OF THIS APPEAL THE ISSUE R ELATING TO ITA NO.5237/DEL/2010 5 EXISTENCE OF PERMANENT ESTABLISHMENT (PE) WAS ARGUED BY BOTH THE PARTIES ON THE BASIS OF WHICH THE CLAIM OF THE ASSESSEE I S DEPENDING. ACCORDING TO THE ASSESSEE, FOR ITS ACTIVITY RELATING TO OUTSIDE INDIA OPERATION PE DOES NOT EXIST. THEREFORE, IT IS THE CASE OF THE ASSESSEE THAT NO PART OF THE REVENUE RECEIVED BY IT WITH REG ARD TO THE ACTIVITIES CARRIED ON OUTSIDE INDIA IS TAXABLE. AS AGAINST THAT, IT IS THE CASE OF THE REVENUE THAT ON ITS OUTSIDE INDIA OPERATIONS, THE ASSESSEE IS LIABLE FOR TAXATION AS THERE IS AN EXISTENCE OF PE OF THE ASSESSEE IN INDIA. TO UNDERSTAND THE CONTROVERSY, IT WILL BE RELEVANT TO ME NTION THE FOLLOWING FACTS. 3. VIDE AGREEMENT DATED 28 TH FEBRUARY, 2006, THE ASSESSEE COMPANY ALONG WITH M/S LARSEN & TOUBRO LTD. (L&T) HAD ENTERED INTO AN AGREEMENT WITH OIL AND NATURAL GAS CORPORATION (O NGC) TO CARRY THE WORK OF SURVEYS (PRE-ENGINEERING, PRE-CONSTRUCTI ON/PRE-INSTALLATION AND POST CONSTRUCTION), DESIGN, ENGINEERING, PROCUREME NT, FABRICATION, ANTI CORROSION AND WEIGHT COATING, LOAD OUT, TIE DOW N/SEA FASTENING, TOW OUT/SAIL OUT, TRANSPORTATION, INSTALLATION, MODIFICATI ONS AT EXISTING FACILITIES, HOOK UP TESTING, PRE-COMMISSIONING, START UP AND COMMISSIONING OF ENTIRE FACILITIES COVERED UNDER VASAI EAST DEVELOPMENT PROJECT. THE RECITAL CLAUSE VIDE WHICH SUCH WORK IS STATED IN THE AGREEMENT READ AS UNDER:- WHEREAS THE COMPANY IS DESIROUS OF CARRYING WORK OF SURVEYS (PRE-ENGINEERING, PRE-CONSTRUCTION/PRE-INSTALLATION AND POST CONSTRUCTION), DESIGN, ENGINEERING, PROCUREMENT, FABRI CATION, ANTI CORROSION AND WEIGHT COATING, LOAD OUT, TIE DOWN/S EA FASTENING, TOW OUT/SAIL OUT, TRANSPORTATION, INSTALLATION, MODIFICATIONS AT EXISTING FACILITIES, HOOK UP TESTING, P RE- COMMISSIONING, START UP AND COMMISSIONING OF ENTIRE FA CILITIES COVERED UNDER VASAI EAST DEVELOPMENT PROJECT (HEREINAF TER REFERRED TO AS THE WORK OR WORKS AND MORE PARTICUL ARLY DEFINED IN CLAUSE 1.1.37 OF GENERAL CONDITIONS OF THE CONTRACT) ON TURNKEY BASIS AT ITS WESTERN OFFSHORE SITE. ITA NO.5237/DEL/2010 6 4. THE ABOVE MENTIONED CONTRACT WAS ON TURNKEY BASIS A T ONGCS WESTERN OFFSHORE SITE. ONGC INVITED TENDERS FOR THIS WOR K VIDE NOTICE DATED 30 TH JUNE, 2005 IN PURSUANCE OF WHICH THE AFOREMENTIONED CONTRACT WAS AWARDED TO THE ASSESSEE COMPANY ALONG WITH L&T. 5. THE ASSESSEE COMPANY AND L&T FOR CARRYING OUT THIS WO RK HAD ENTERED INTO A MEMORANDUM OF UNDERSTANDING WHICH IS DATED 15 TH OCTOBER, 2005 COPY OF WHICH IS FILED AT PAGE 272 OF THE PAPER BOOK. THE ALLOCATION OF WORK BETWEEN THEM AS SPECIFIED IN T HE SAID MEMORANDUM OF UNDERSTANDING WAS AS UNDER:- SAMSUNG: SAMSUNG: SAMSUNG: SAMSUNG: BCPA BCPA BCPA BCPA- -- -2 DECK, JACKET, BUILDING MODULE 2 DECK, JACKET, BUILDING MODULE 2 DECK, JACKET, BUILDING MODULE 2 DECK, JACKET, BUILDING MODULE INCLUDING TG. INSTALLATION OF ALL THE STRUCTURES INCLUDING TG. INSTALLATION OF ALL THE STRUCTURES INCLUDING TG. INSTALLATION OF ALL THE STRUCTURES INCLUDING TG. INSTALLATION OF ALL THE STRUCTURES (EXCEPT MODI (EXCEPT MODI (EXCEPT MODI (EXCEPT MODIFICATION) AND INSURANCE. FICATION) AND INSURANCE. FICATION) AND INSURANCE. FICATION) AND INSURANCE. L & T : L & T : L & T : L & T : BOOSTER COMPRESSOR MODULES, HP COMPRESSOR BOOSTER COMPRESSOR MODULES, HP COMPRESSOR BOOSTER COMPRESSOR MODULES, HP COMPRESSOR BOOSTER COMPRESSOR MODULES, HP COMPRESSOR MODULE, BRIDGES AND MODIFICATION TO EXISTING MODULE, BRIDGES AND MODIFICATION TO EXISTING MODULE, BRIDGES AND MODIFICATION TO EXISTING MODULE, BRIDGES AND MODIFICATION TO EXISTING FACILITIE FACILITIE FACILITIE FACILITIES. 6. THE ABOVE ALLOCATION WAS FURTHER REVISED BY AMENDM ENT TO MEMORANDUM OF UNDERSTANDING DATED 16 TH NOVEMBER, 2005 A COPY OF WHICH IS PLACED AT PAGE 274 OF THE PAPER BOOK AND T HE REVISED ALLOCATION WAS AS UNDER:- SAMSUNG: SAMSUNG: SAMSUNG: SAMSUNG: BCPA BCPA BCPA BCPA- -- -2 DECK, JACKET, BUILDING MODULE 2 DECK, JACKET, BUILDING MODULE 2 DECK, JACKET, BUILDING MODULE 2 DECK, JACKET, BUILDING MODULE INCLUDING TG, BRIDGES AND MODIFICATION TO INCLUDING TG, BRIDGES AND MODIFICATION TO INCLUDING TG, BRIDGES AND MODIFICATION TO INCLUDING TG, BRIDGES AND MODIFICATION TO EXISTING FACILITIES. INSTALLATION OF ALL THE EXISTING FACILITIES. INSTALLATION OF ALL THE EXISTING FACILITIES. INSTALLATION OF ALL THE EXISTING FACILITIES. INSTALLATION OF ALL THE STRUCTURES AND INSURANCE. STRUCTURES AND INSURANCE. STRUCTURES AND INSURANCE. STRUCTURES AND INSURANCE. L & T : L & T : L & T : L & T : BOOSTER COMPRESSOR MODULES, HP COMPRESSOR BOOSTER COMPRESSOR MODULES, HP COMPRESSOR BOOSTER COMPRESSOR MODULES, HP COMPRESSOR BOOSTER COMPRESSOR MODULES, HP COMPRESSOR MODULE MODULE MODULE MODULE . .. . 7. THE RECITAL CLAUSE OF THE AFOREMENTIONED AGREEMEN T DATED 28 TH FEBRUARY, 2006 STATES THE CONTRACT PRICE AS USD 38,14, 59,881/- + ` 346,08,97,000/-. FOR THE SAKE OF CONVENIENCE THE SAI D CLAUSE IS REPRODUCED AS UNDER:- AND WHEREAS PURSUANT TO THE ABOVE AND THE DISCUSSI ONS AND WHEREAS PURSUANT TO THE ABOVE AND THE DISCUSSI ONS AND WHEREAS PURSUANT TO THE ABOVE AND THE DISCUSSI ONS AND WHEREAS PURSUANT TO THE ABOVE AND THE DISCUSSI ONS CONDUCTED WITH THE CONTRACTOR, THE COMPANY HAS AWAR DED TO THE CONDUCTED WITH THE CONTRACTOR, THE COMPANY HAS AWAR DED TO THE CONDUCTED WITH THE CONTRACTOR, THE COMPANY HAS AWAR DED TO THE CONDUCTED WITH THE CONTRACTOR, THE COMPANY HAS AWAR DED TO THE ITA NO.5237/DEL/2010 7 CONTRACTOR THE CONTRACT FOR THE SAID WORK AT A TOTA L LUMPSUM CONTRACTOR THE CONTRACT FOR THE SAID WORK AT A TOTA L LUMPSUM CONTRACTOR THE CONTRACT FOR THE SAID WORK AT A TOTA L LUMPSUM CONTRACTOR THE CONTRACT FOR THE SAID WORK AT A TOTA L LUMPSUM CONTRACT PRICE OF USD 381,459,881/ CONTRACT PRICE OF USD 381,459,881/ CONTRACT PRICE OF USD 381,459,881/ CONTRACT PRICE OF USD 381,459,881/- -- - + INR 346,08,97,0 + INR 346,08,97,0 + INR 346,08,97,0 + INR 346,08,97,000/ 00/ 00/ 00/- -- - (UNITED STATES DOLLARS THREE HUNDRED EIGHTY ONE MIL LION FOUR (UNITED STATES DOLLARS THREE HUNDRED EIGHTY ONE MIL LION FOUR (UNITED STATES DOLLARS THREE HUNDRED EIGHTY ONE MIL LION FOUR (UNITED STATES DOLLARS THREE HUNDRED EIGHTY ONE MIL LION FOUR HUNDRED FIFTY NINE THOUSAND EIGHT HUNDRED EIGHTY ON E PLUS HUNDRED FIFTY NINE THOUSAND EIGHT HUNDRED EIGHTY ON E PLUS HUNDRED FIFTY NINE THOUSAND EIGHT HUNDRED EIGHTY ON E PLUS HUNDRED FIFTY NINE THOUSAND EIGHT HUNDRED EIGHTY ON E PLUS INDIAN RUPEES THREE HUNDRED FORTY SIX CRORES EIGHT LAKHS NINETY INDIAN RUPEES THREE HUNDRED FORTY SIX CRORES EIGHT LAKHS NINETY INDIAN RUPEES THREE HUNDRED FORTY SIX CRORES EIGHT LAKHS NINETY INDIAN RUPEES THREE HUNDRED FORTY SIX CRORES EIGHT LAKHS NINETY SEVEN THOUSAND ONLY) BY ITS NOA MR/OW/MM/VED/03/200 5 DATED SEVEN THOUSAND ONLY) BY ITS NOA MR/OW/MM/VED/03/200 5 DATED SEVEN THOUSAND ONLY) BY ITS NOA MR/OW/MM/VED/03/200 5 DATED SEVEN THOUSAND ONLY) BY ITS NOA MR/OW/MM/VED/03/200 5 DATED 24.01.200 24.01.200 24.01.200 24.01.2006 WHICH IS THE EFFECTIVE DATE OF COMMENCEM ENT OF THIS 6 WHICH IS THE EFFECTIVE DATE OF COMMENCEMENT OF TH IS 6 WHICH IS THE EFFECTIVE DATE OF COMMENCEMENT OF TH IS 6 WHICH IS THE EFFECTIVE DATE OF COMMENCEMENT OF TH IS CONTRACT) AND ON THE TERMS AND CONDITIONS AS AGREED TO BY THE CONTRACT) AND ON THE TERMS AND CONDITIONS AS AGREED TO BY THE CONTRACT) AND ON THE TERMS AND CONDITIONS AS AGREED TO BY THE CONTRACT) AND ON THE TERMS AND CONDITIONS AS AGREED TO BY THE TWO PARTIES AS OF THE SAID DATE OF NOA AND AS OUTLI NED IN THIS TWO PARTIES AS OF THE SAID DATE OF NOA AND AS OUTLI NED IN THIS TWO PARTIES AS OF THE SAID DATE OF NOA AND AS OUTLI NED IN THIS TWO PARTIES AS OF THE SAID DATE OF NOA AND AS OUTLI NED IN THIS AGREEMENT (HEREINAFTER ALSO REFERRED TO AS THE CON TRACT) AGREEMENT (HEREINAFTER ALSO REFERRED TO AS THE CON TRACT) AGREEMENT (HEREINAFTER ALSO REFERRED TO AS THE CON TRACT) AGREEMENT (HEREINAFTER ALSO REFERRED TO AS THE CON TRACT) 8. ANNEXURE A TO THE AFOREMENTIONED AGREEMENT DATED 28 TH FEBRUARY, 2006 DESCRIBE THE GENERAL CONDITIONS OF THE CONTRACT AND ANNEXURE B COMPRISE OF BIDDING DOCUMENTS, ETC. THERE ARE OTHER ANNEXURES ALSO, ANNEXURES C, D, E, F AND G. ANNEXURE C PRESCRIBE THE CONTRACT PRICE SCHEDULE AND RENTAL RATE SCHEDULE AND ANNEXURE D PRESCRIBE THE CONSTRUCTION SCHEDULE/PROJECT KEY DATES. ANNEXURE E PRESCRIBE MILESTONE PAYMENT FORMULA. ANNEXURE F IS IN TEGRITY PACT DULY SIGNED BY CONSORTIUM MEMBERS (ASSESSEE AND L&T) AND O NGC. ANNEXURE G IS MEMORANDUM OF UNDERSTANDING CONCLUDED BETWEEN THE ASSESSEE AND L&T. THE CLAUSE (D) OF THE SAID AGREEMENT DE SCRIBE AS UNDER:- (D) THE CONTRACTOR HEREBY COVENANTS WITH COMPANY TO PERFORM THE WORK IN CONFORMITY IN ALL RESPECT WITH PROV ISIONS OF THE CONTRACT AND IN CONSIDERATION OF THE CARRYING OUT AND COMPLETION OF THE WORKS BY THE CONTRACTOR, THE COMPANY HE REBY COVENANTS TO PAY THE AMOUNTS AT THE TIMES AND IN THE MANNER DESCRIBED HEREINAFTER. 9. CONTRACTOR IN THE AGREEMENT MEANS THE CONSORTIUM O F THE ASSESSEE AND L& T. 10. IT WILL ALSO BE RELEVANT HERE TO MENTION THE SCO PE OF WORK SCOPE OF WORK SCOPE OF WORK SCOPE OF WORK DESCRIBED UNDER THE HEAD SUBJECT MATTER OF CONTRACT CONTAINING IN CLAUSE 2.0 OF ANNEXURE A TO THE CONTRACT:- ITA NO.5237/DEL/2010 8 2.0 SUBJECT MATTER OF CONTRACT 2.1 SCOPE OF WORK THE SCOPE OF WORK FOR THE CONTRACT SHALL INCLUDE IN GE NERAL BUT NOT LIMITED TO SURVEYS (PRE-ENGINEERING, PRE-CONSTRUCTIO N/PRE- INSTALLATION AND POST-INSTALLATION), DESIGN, ENGINEERIN G, PROCUREMENT, FABRICATION, ANTICORROSION & WEIGHT COATING OF RISERS AND SUBMARINE PIPE LINE SPOOLS, LOAD OUT, TI E DOWN/SEA FASTENING, TOW-OUT/SAIL-OUT, TRANSPORTATION, INSTALLATION, HOOK- UP, MODIFICATIONS ON EXISTING FACILITIES, TESTING, PRE- COMMISSIONING, COMMISSIONING OF ENTIRE FACILITIES AS DESCRIBED IN THE BIDDING DOCUMENTS. INCLUDED AMONG THESE FUNCTIONS, BUT NOT LIMITED TO THESE ARE : A) CARRY OUT ALL ENGINEERING AND DESIGN REQUIREMENTS TO COMPLETELY DESIGN AND ENGINEER THESE FACILITIES INCLUD ING ALL SAFETY STUDIES. B) PROVIDE PURCHASING, EXPEDITING, INSPECTION, HANDLI NG AND TRANSPORTATION OF ALL MATERIALS AND EQUIPMENT. C) PREPARE AND ISSUE PURCHASE SPECIFICATIONS AFTER OB TAINING APPROVAL FROM THE COMPANY WHERE REQUIRED, FOR ALL EQ UIPMENT AS WELL AS OBTAINING VENDOR CERTIFIED PRINTS, INSTRUCTIO NS, PARTS LISTS, ETC. D) PREPARE AND ISSUE ALL ENGINEERING, PURCHASING AN D CONSTRUCTION SCHEDULES FOR APPROVAL OF COMPANY. E) SUPERVISION & MONITORING AND PROGRESS REPORTING DU RING DESIGN & ENGINEERING FABRICATION/INSTALLATION, HOOK-UP , TESTING, PRE-COMMISSIONING, START UP & COMMISSIONING, ETC. F) PREPARE AND ISSUE ALL DRAWINGS REQUIRED FOR CARR YING OUT THIS PROJECT. G) PROVIDE ALL MANPOWER, MATERIALS, LOAD-OUT, TIE-DOWN , TRANSPORTATION, HANDLING AND ERECTION OF EQUIPMENT, MACH INES, TOOLS AND INSTRUMENTS; STORAGE AND FABRICATION FACILITY; PERSONNEL HOUSING, MESS AND TRANSPORTATION; AND ALL SERVICES NEC ESSARY TO PERFORM THE WORK FOR THE COMPLETE INSTALLATION AS DESCRI BED IN PART IV OF BIDDING DOCUMENT. H) COMPLY WITH ALL CENTRAL, STATE AND LOCAL GOVERNMENT REGULATIONS APPLICABLE TO THE WORK. ITA NO.5237/DEL/2010 9 I) OBSERVE ALL APPLICABLE COMPANYS AND ACCEPTED IND USTRY SAFETY PRACTICES AND, IN ADDITION, ALL GOVERNMENTAL REG ULATIONS AS APPROPRIATE FOR THIS WORK. J) COMPLY WITH APPLICABLE CODES AND STANDARDS AS PER CONTRACT, OF ENGINEERING, FABRICATION, CONSTRUCTION AND SAFETY. K) PROVIDE NECESSARY DOCUMENTS AND DRAWINGS FOR THE S CRUTINY OF THE APPOINTED THIRD PARTY INSPECTION AND CERTIFYING A GENCY. L) PROVIDE ALL AS-BUILT DRAWINGS, DOCUMENTS AND MANUA LS. M) PROVIDE THIRD PARTY INSPECTION AND CERTIFICATE OF AP PROVAL FOR ALL THE FACILITIES UNDER THE SCOPE OF WORK. N) PROVIDE ALL STATUTORY APPROVALS, INSURANCE, GUARANTE E. FURTHER DETAILS ON SCOPE OF WORK HAVE BEEN PROVIDED I N PART-IV OF BIDDING DOCUMENT. 11. THE EXISTING FACILITIES HAVE BEEN DESCRIBED AS UNDE R:- 2.1.2 EXISTING FACILITIES FOLLOWING ARE THE EXISTING FACILITIES WITH REFERENCE TO THE SCOPE OF WORK OF THIS CONTRACT: BPA COMPLEX COMPRISING OF THE FOLLOWING FACILITIES I) BPA PROCESS PLATFORM BRIDGE CONNECTED TO BLQ-1, B A AND FLARE STRUCTURE BF-1. II) BLQ-1 LIVING QUARTERS PLATFORMS BRIDGE CONNECTED TO BPA. III) BCP-A GAS COMPRESSION PLATFORM BRIDGE CONNECTE D TO BPA & BLQ-1. 12. THE EFFECTIVE DATE OF THE COMMENCEMENT OF THE C ONTRACT HAS BEEN WRITTEN AS 24 TH JANUARY, 2006 AND DATE OF COMPLETION AS DESCRIBED IN CLAUSE 6.3.1 IS 2 ND APRIL, 2008. UNDER THE HEAD GENERAL OBLIGATION O F THE CONTRACTORS STATED IN CLAUSE 2.3 THE OBLIGATION O F THE CONTRACTOR AS DESCRIBED IN CLAUSE 2.3.1.3 IS AS UNDER:- ITA NO.5237/DEL/2010 10 CONTRACTOR SHALL BE DEEMED TO HAVE SATISFIED HIMSELF A S TO THE CORRECTNESS AND SUFFICIENCY OF THE CONTRACT PRICE FOR TH E WORKS. THE CONSIDERATION PROVIDED IN THE CONTRACT FOR THE CONTRA CTOR UNDERTAKING THE WORKS SHALL COVER ALL THE CONTRACTORS OBLIGATIONS AND ALL MATTERS AND THINGS NECESSARY FOR PR OPER EXECUTION AND MAINTENANCE OF THE WORKS IN ACCORDANCE W ITH THE CONTRACT AND FOR COMPLYING WITH ANY INSTRUCTIONS WHIC H THE COMPANYS REPRESENTATIVE MAY ISSUE IN ACCORDANCE WITH IN CONNECTION THEREWITH AND OF ANY PROPER AND REASONABLE MEASURES WHICH THE CONTRACTOR TAKES IN THE ABSENCE OF SP ECIFIC INSTRUCTIONS FROM THE COMPANYS REPRESENTATIVE. 13. CLAUSE 2.3.5.1 STATES AN OBLIGATION CAST UPON THE C ONTRACTOR TO SUPPLY TO ONGC WITHIN 21 DAYS OF THE EFFECTIVE DATE O F COMMENCEMENT OF WORK OR PRIOR TO KICK OFF MEETING, WHICHEVER IS E ARLIER, AN ORGANIZATION CHART SHOWING THE PROPOSED ORGANIZATION TO BE ESTABLISHED BY THE CONTRACTOR FOR EXECUTION AND THE W ORK INCLUDING THE IDENTITIES AND CURRICULUM VITAE OF THE KEY PERSONNEL TO BE DEPLOYED AND ANY REVISION OR ALTERATION TO SUCH ORGANIZATION CHART WAS TO BE PROMPTLY INFORMED TO THE ASSESSEE COMPANY. 14. THE CLAUSE 3 DESCRIBE THE PAYMENTS. UNDER CLAUSE 3 .1 CONTRACT PRICE HAS BEEN DESCRIBED AS UNDER:- THE COMPANY SHALL PAY TO THE CONTRACTOR IN CONSIDERATIO N OF SATISFACTORY COMPLETION OF ALL THE WORKS COVERED BY THE SCOPE OF WORK UNDER THE CONTRACT THE CONTRACT PRICE OF CONTRACT PRIC E OF USD 381, 459, 881 + INR 346, 08, 97, 000.00 (UNITED STATES DOLLARS THREE HUNDRED EIGHTY ONE MILLION FOUR HUNDRE D FIFTY NINE THOUSAND EIGHT HUNDRED EIGHTY ONE PLUS INDIAN RU PEES THREE HUNDRED FORTY SIX CRORES EIGHT LAKHS NINETY SEVE N THOUSAND ONLY) AS PER THE DETAILS AND BREAK-UP OF PRI CES GIVEN IN SCHEDULE OF PRICES. THE CONTRACT PRICE IS A FIRM PRI CE AND THE CONTRACTOR SHALL BE BOUND TO KEEP THE SAME FIRM AND WITH OUT ESCALATION ON ANY GROUND WHATSOEVER UNTIL COMPLETION OF ENTIRE WORKS AGAINST THIS CONTRACT. UNLESS OTHERWISE SPECIFIED IN THE CONTRACT, COST OF EXECUTION OF WORKS ON TURNKEY BASIS AN D TESTS ETC. AS SPECIFIED IN CONTRACT AND ALL EXPENSES, DUTIES, TAXES, FEES CHARGES IN RELATION TO OR IN CONNECTION THEREWITH INCLUD ING INSURANCE RISK OF WEATHER, CONSTRUCTIONAL PLANT AND EQU IPMENT BREAKDOWN AND SITE CONDITIONS ETC. AS PER PROVISIONS O F THE CONTRACT, SHALL BE DEEMED TO BE INCLUDED IN THE CONTRACT PRICE. PAYMENT SHALL BE MADE IN THE CURRENCY OR CURRENCIES G IVEN IN THE SCHEDULE OF PRICES FOR THE WORK EXECUTED AS PER THE ITA NO.5237/DEL/2010 11 PROCEDURE SET FORTH IN CLAUSE 3.2. ADJUSTMENT TO CONTRAC T PRICE, IF ANY, SHALL BE MADE IN ACCORDANCE WITH PROVISIONS OF CONTRACT. 15. UNDER THE HEAD PAYMENT PROCEDURE IN CLAUSE 3.2 , PROVISIONAL PROGRESSIVE PAYMENTS FOR PART OF THE WORK EXECUTED BY THE CONTRACTOR ARE STATED TO BE MADE ON THE BASIS OF COMPLETION OF WO RK AS PER THE MILESTONE PAYMENT FORMULA AND THE SAID CLAUSE READ AS U NDER:- PENDING COMPLETION OF THE WHOLE WORKS, PROVISIONAL PROGRESSIVE PAYMENTS FOR THE PART OF THE WORKS EXECUTED BY THE CONTRACTOR SHALL BE MADE BY COMPANY ON THE BASIS OF SAID WORK COMPLETED AND CERTIFIED BY THE COMPANYS REPRESENTATIVE AS PER THE MILESTONE PAYMENT FORMULA PROVIDED IN THE BIDDING DOCUMENT AT ANNEXURE-E OF AGREEMENT. SUCH CERTIFICATION OF THE WORK COMPLETED SHA LL BE MADE BY THE COMPANYS REPRESENTATIVE WITHIN 15 DAYS OF RECEIPT OF CONTRACTORS APPLICATION FOR CERTIFICATION WITH ALL REQUIRED SUPPORTING DOCUMENTS. NO PAYMENTS SHALL BECO ME DUE AND PAYABLE TO THE CONTRACTOR UNTIL CONTRACT IS SIGNED BY THE TWO PARTIES AND CONTRACTOR FURNISHES TO THE COMPANY PERFORMANCE GUARANTEE (AS PER CLAUSE 3.3) AND CERTIFI CATE OF INSURANCE FOR POLICY/POLICIES SPECIFIC FOR THE PROJE CT (AS PER REQUIREMENT OF CL. 7.3) AND A COPY OF PERMISSION FRO M RESERVE BANK OF INDIA FOR OPENING PROJECT OFFICE IN INDIA (I N THE CASE OF FOREIGN CONTRACTOR). 16. IN CLAUSE 3.3 UNDER THE HEAD PERFORMANCE GUARAN TEE THE CONTRACTOR IS UNDER AN OBLIGATION TO FURNISH TO ONGC A BANK GUARANTEE WITHIN TWO WEEKS FROM THE DATE OF SIGNING OF THE CONT RACT OF EQUIVALENT AMOUNT OF 10% OF THE CONTRACT PRICE. CLAUSE 3.5 DESC RIBE THE ADJUSTMENT TO THE CONTRACT PRICE WHICH, FOR THE YEAR UNDER CONSIDERATION, IS NOT RELEVANT AS NO SUCH EXIGENCY HAS B EEN SHOWN TO BE HAPPENED. 17. DURING THE YEAR UNDER CONSIDERATION, AS PER LETTE R DATED 24 TH MAY, 2006 OF THE RBI, MUMBAI, THE PROJECT OFFICE IS OPENED ON 24 TH MAY, 2006. THE ASSESSEE FURNISHED THE RETURN OF INCOME IN AC CORDANCE WITH ARTICLE 7 OF DOUBLE TAXATION AVOIDANCE AGREEMENT (D TAA) BETWEEN INDIAN AND KOREA. THE ASSESSEE OFFERED THE REVENUE OF RS.23,73,45,563/- ON ACCOUNT OF AFOREMENTIONED CONTR ACT. HOWEVER, ITA NO.5237/DEL/2010 12 THE RETURN OF INCOME WAS FILED AT NIL SHOWING LOSS OF R S. 23,50,939/-. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO SHOW CAUSE AS T O WHY THE RETURN OF INCOME WAS FILED AT NIL. IN RESPONSE TO SUCH SHOW CAUSE NOTICE, IT WAS STATED BY THE ASSESSEE THAT THE BUSINESS OF T HE ASSESSEE COMPANY IS GOVERNED BY THE ACCOUNTING STANDARD VII (R EVISED) AND THE ACCOUNTS HAVE BEEN PREPARED ON THE BASIS OF COMPLETION METHOD. THE PERCENTAGE OF COMPLETION IS DETERMINED AS A PROPORTIO N OF COST INCURRED UPTO THE DATE OF EACH ACCOUNTING PERIOD TO THE TOTAL ESTIMATED COST. THE PROVISION IS MADE FOR FORESEEABLE LOSSES WHEN C URRENT ESTIMATE OF TOTAL CONTRACT COST AND REVENUES INDICATE A LOSS. THE ASSESSEE IS GOVERNED BY THE PROVISIONS OF ARTICLE 7 OF THE DTAA AND AS PER THE SAID ARTICLE ALL EXPENSES INCURRED IN EARNING INCOME ARE FULLY DEDUCTIBLE BASED ON THE COMMERCIAL ACCOUNTING PRINCI PLE IN COMPUTING THE SAID BUSINESS PROFITS CHARGEABLE TO INDIAN INCOME-TA X. THE ASSESSING OFFICER OBSERVED THAT PROFIT & LOSS ACCOUNT OF T HE MUMBAI PROJECT OFFICE AS SHOWING THE GROSS INCOME OF RS.23,73,9 3,083/- AGAINST WHICH THE ASSESSEE HAD CLAIMED THE EXPENSES OF RS.24,34,70 ,741/-. THE CONTRACT REVENUE OF RS.23,73,45,563/- WAS 14.56% OF THE TOTAL REVENUE OF THE CONTRACT FOR INSIDE INDIA WORK WHICH WAS RS.162.97 CRORE. THE INVOICES RAISED BY THE ASSESSEE FOR INSIDE I NDIA ACTIVITY WERE TO THE TUNE OF RS.3,25,82,569/- WHICH HAVE BEEN LISTED AT PARA 5 OF THE ASSESSMENT ORDER. IT WAS FURTHER NOTICED THAT OU T OF TOTAL EXPENSES INCURRED AT RS. 24,34,70,741/-, WHICH WAS DEBI TED TO PROFIT & LOSS ACCOUNT, THE ASSESSEE HAD INCURRED EXPENSES ON ACCOUN T OF COST OF REVENUES, SELLING, GENERAL AND ADMINISTRATIVE EXPEN SES AND DEPRECIATION ON TOTAL AMOUNT OF RS.24,34,70,741/-. IT WAS FURTHER OBSERVED THAT COST OF REVENUES WERE SHOWN UNDER THE FOL LOWING THREE SUB-HEADS FOR AN AGGREGATE SUM OF RS. 23,91,08,293/-: (I) HOOK UP AND COMMISSIONING - RS. 89,04,947/-; (II) INSURANCE - RS. 22,66,85,140/-; AND ITA NO.5237/DEL/2010 13 (III) PRE-ENGINEERING AND SURVEY - RS. 35,18,206/-; 18. IT WAS FURTHER NOTICED THAT THE INSURANCE WAS PAI D BY THE ASSESSEE TO IFFCO-TOKIO GENERAL INSURANCE COMPANY LTD. A ND THE POLICY TAKEN WAS IN THE NAME OF SAMSUNG HEAVY INDUSTRI ES LTD. SO FAR AS IT RELATES TO THE AMOUNT OF RS. 89,04,947/- CLAIME D ON ACCOUNT OF HOOK UP AND COMMISSIONING, THE SAME WAS PAID TO OFFSHOR E HOOK UP AND CONSTRUCTION SERVICES INDIA PVT. LTD. FOR WHICH THE TDS WAS DEDUCTED, HENCE, THE ASSESSING OFFICER ALLOWED THE SAID AMOUNT TO THE ASSESSEE. HE FOUND THAT TDS ON PRE-ENGINEERING AND SURV EY WAS BELATEDLY MADE, THEREFORE, HE EXCLUDED THE EXPENSES O F RS. 35,18,206/- ON THE GROUND OF APPLICATION OF SECTION 40(A)(IA) OF THE ACT. IT WAS ALSO NOTICED THAT THE ASSESSING OFFICER HAD DISALLO WED THE SAID AMOUNT AND THE ASSESSING OFFICER HAS CALCULATED THE INCO ME OF THE ASSESSEE FROM INSIDE INDIA ACTIVITY AT A LOSS OF RS. 23,33 ,939/- IN THE FOLLOWING MANNER:- INCOME FROM BUSINESS OR PROFESSION INCOME AS PER P/L A/C - 6129944 ADD: PROVISION FOR TAXATION PROVISION FOR FBT 35319 PROVISION FOR DEFERRED TAX LIABILITY 16967 DEPRECIATION COMPUTED UNDER SCH. XIV OF THE COMPANIES ACT 236561 DISALLOWANCE U/S 40(A)(I) 3759997 DISALLOWANCE U/S 40A (3) 4100 DISALLOWANCE AS DISCUSSED ABOVE 17000 4069944 -2060000 LESS : DEPRECIATION ALLOWED U/S 32 273939 TAXABLE INCOME -2333939 19. IT WAS FURTHER NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE DID NOT DECLARE INCOME OUT OF REVENUE EARNED BY IT ON THE ACTIVITIES ALLEGEDLY CARRIED OUTSIDE INDIA AND THE ASSESSEE WAS REQU IRED TO SHOW CAUSE AS TO WHY THE SAID REVENUE SHOULD NOT BE BROUGHT TO TAX IN INDIA AS THOSE ACTIVITIES ARE CARRIED FROM INSIDE INDIA OPERA TIONS. IN ITA NO.5237/DEL/2010 14 RESPONSE, IT WAS SUBMITTED THAT THE CONSIDERATION FOR SUP PLY OF GOODS IS RECEIVED IN USD IN RESPECT OF OFFSHORE SUPPLY AND O FFSHORE SERVICES BY THE ASSESSEE OUTSIDE INDIA, THE SALE IS COMPLETED OUTSID E INDIA AND THE SAME IS NOT ATTRIBUTABLE TO THE PERMANENT ESTABLISH MENT. NO PART OF THE INCOME FOR THE OFFSHORE SUPPLY OR OFFSHORE SE RVICES IS RECEIVED IN INDIA. THE PROPERTY IN GOODS, WHICH WERE THE SUBJ ECT MATTER OF OFFSHORE SUPPLY, PASSED ON TO ONGC OUTSIDE THE TERRITORY OF INDIA. ACCORDING TO SECTION 5 (2) OF THE INCOME-TAX ACT, T HE ASSESSEE BEING NON-RESIDENT, WILL BE CHARGEABLE TO TAX IN INDIA ONL Y IN THE EVENT WHEN INCOME ACCRUE OR ARISE TO IT IN INDIA OR IS DEEMED TO ACCRUE OR ARISE IN INDIA OR INCOME IS RECEIVED OR DEEMED TO BE RECEIVED IN INDIA AND NOT OTHERWISE. ALL THE OPERATIONS IN CONNECTIONS WITH OFF SHORE SUPPLY ARE CARRIED OUT OUTSIDE INDIA, THEREFORE, THE QUESTION OF ANY PORTION OF THE CONSIDERATION TO BE REGARDED AS DEEMED TO ACCRUE OR A RISE IN INDIA WOULD NOT ARISE. THE REQUIREMENT OF THE ASSESSEE TO PER FORM CERTAIN SERVICES IN INDIA SUCH AS UNLOADING, PORT CLEARANCE, TR ANSPORTATION OF THE EQUIPMENTS SUPPLIED WOULD NOT RENDER THE ASSESSEE ELI GIBLE TO TAX AS THE CONSIDERATION THEREOF IS EMBEDDED IN THE CONSIDE RATION FOR OFFSHORE SUPPLY. ALTHOUGH THE ASSESSEE WAS REQUIRED TO CAR RY OUT CERTAIN ACTIVITIES IN INDIA, THE CONSIDERATION FOR OF FSHORE SERVICES HAD SEPARATELY BEEN PROVIDED FOR. IT WAS SUBMITTED THAT T HE FACT THAT THE CONTRACT HAS BEEN FASHIONED AS A TURNKEY CONTRACT BY I TSELF MAY NOT BE OF MUCH SIGNIFICANCE. THE PROJECT IS A TURNKEY PROJE CT, THE CONTRACT MAY ALSO BE A TURNKEY CONTRACT, BUT THE SAME BY ITSELF WOULD NOT MEAN THAT EVEN FOR THE PURPOSE OF TAXABILITY THE ENTIRE C ONTRACT MUST BE CONSIDERED TO BE AN INTEGRATED ONE SO AS TO MAKE THE A SSESSEE TO PAY TAX IN INDIA. THE TAXABLE EVENTS IN EXECUTION OF A CONTRACT MAY ARISE AT SEVERAL STAGES IN SEVERAL YEARS. THE SUPPLY OBLIGATIONS I S DISTINCT AND SEPARATE FROM SERVICE OBLIGATION. THE PRICE FOR EACH OF COMPONENT OF CONTRACT IS SEPARATE. SIMILARLY, OFFSHORE SUPPLY AND O FFSHORE SERVICES HAVE SEPARATELY BEEN DEALT WITH. THE PRICES IN EACH OF THE SEGMENT ITA NO.5237/DEL/2010 15 ARE DIFFERENT. THE VERY FACT THAT IN THE CONTRACT THE SUPPLY SEGMENT AND SERVICE SEGMENT HAVE BEEN SPECIFIED IN DIFFERENT P ARTS OF THE CONTRACT IS A POINTER TO SHOW THE LIABILITY OF THE ASSE SSEE THEREUNDER IS ALSO DIFFERENT. THE CONTRACT UNDISPUTEDLY WAS EXECUTE D IN INDIA. BY ENTERING INTO A CONTRACT IN INDIA ALTHOUGH PARTS THE REOF WILL BE CARRIED OUT OUTSIDE INDIA WILL NOT MAKE THE ENTIRE INCOME DE RIVED BY THE ASSESSEE TO BE TAXABLE IN INDIA. IT WAS SUBMITTED THAT O NLY SUCH PART OF INCOME AS WAS ATTRIBUTABLE TO THE OPERATIONS CARRIED O UT IN INDIA WOULD BE TAXABLE IN INDIA. THE INTERPRETATION OF THE TRE ATY SHOULD BE MADE IN ACCORDANCE WITH THE OECD MODEL AND REFERENCE WAS MAD E TO THE COMMENTARY WRITTEN BY KLAUS VOGEL VIDE WHICH THE SECO ND SENTENCE OF ARTICLE 7.1 WAS STATED TO HAVE ALLOWED THE STATE OF TH E PERMANENT ESTABLISHMENT TO TAX THE BUSINESS PROFIT, BUT ONLY SO MU CH OF THEM AS IS ATTRIBUTABLE TO THE PERMANENT ESTABLISHMENT. 20. HEAVY RELIANCE WAS PLACED BY THE ASSESSEE ON THE DEC ISION OF HONBLE SUPREME COURT IN THE CASE OF HYUNDAI HEAVY I NDUSTRIES LTD. (2007) 291 ITR 482 (SC) WHEREIN WHILE EXPLAINING TH E ATTRACTION RULE, IT WAS HELD BY HONBLE APEX COURT THAT IT IMPLIES THAT W HEN AN ENTERPRISE (GE) SET UP A PE IN ANOTHER COUNTRY, IT BRINGS ITSELF WITHIN THE PHYSICAL JURISDICTION ONLY OF THAT ANOTHER COUNTRY TO SUCH A D EGREE THAT SUCH ANOTHER COUNTRY CAN TAX ALL PROFITS FROM THE GE DERI VED FROM THE SOURCE COUNTRY WHETHER THROUGH THAT PE OR NOT. IT IS THE ACT OF SETTING OUT A PE WHICH TRIGGERS THE TAXABILITY OF TRANSACTIONS IN TH E SOURCE STATE AND IT WAS SUBMITTED THAT UNLESS THE PE IS SET UP, THE QUESTIO N OF TAXABILITY DOES NOT ARISE IRRESPECTIVE OF THE FACT THAT WHETHER T HE TRANSACTIONS ARE DIRECT OR THEY ARE THROUGH THE PE. IN THE CASE OF TURNKEY PROJECTS, THE PE IS SET UP AT THE INSTALLATION STAGE WHILE THE ENTIRE TURNKEY PROJECT INCLUDING THE SALE OF EQUIPMENT IS FINALIZED BEFORE T HE INSTALLATION STAGE. THE SETTING UP OF THE PE IN SUCH A CASE, IS A STAG E SUBSEQUENT TO THE CONCLUSION OF THE CONTRACT. IT IS A RESULT OF SALE OF EQUIPMENT THAT ITA NO.5237/DEL/2010 16 THE INSTALLATION PE CAME INTO EXISTENCE. IT WAS SUBMIT TED THAT THE CONTRACT IN THE PRESENT CASE WAS CONCLUDED ON 28 TH FEBRUARY, 2006 AS AGAINST THAT ASSESSEES INSTALLATION PE CAME INTO EXISTENCE ON 24 TH MAY, 2006 AND IF THE LAW LAID DOWN IN AFOREMENTIONE D DECISION OF APEX COURT IS TAKEN INTO CONSIDERATION, THEN, REVENUE FOR SALE OF EQUIPMENT FINALIZED BEFORE THE SETTING UP OF INSTALLATION PE CA NNOT BE ATTRIBUTED TO PE WHICH WAS NOT EVEN IN EXISTENCE AT THE TIME OF THE SAID SALE. HENCE, NO PART OF OUTSIDE INDIA REVENUE COULD BE ATT RIBUTED TO THE REVENUE. 21. REFERENCE WAS ALSO MADE TO THE DECISION IN THE CASE OF ISHIKAWAJIMA HARIMA HEAVY INDUSTRIES CO. LTD. (2007) 288 ITR 408 (SC) WHEREIN IT WAS HELD THAT FOR OFFSHORE WORK RENDE RED OUTSIDE INDIA; THE PERMANENT ESTABLISHMENT WOULD HAVE NO ROLE TO PLA Y IN RESPECT THERETO IN EARNING THE SAID INCOME. SECONDLY, THE E NTIRE SERVICES HAVING BEEN RENDERED OUTSIDE INDIA AND INCOME ARISING THEREFROM CANNOT BE ATTRIBUTABLE TO THE PERMANENT ESTABLISHMENT SO AS TO BRING WITHIN THE CHARGE OF TAX. FOR ATTRACTING THE TAXIN G STATUTE, THERE HAS TO BE SOME ACTIVITY THROUGH PERMANENT ESTABLISHMENT. IF I NCOME ARISES, WITHOUT ANY ACTIVITY OF THE PERMANENT ESTABLISHMENT, EVEN UNDER THE DTAA THE TAXATION LIABILITY IN RESPECT OF OVERSEAS SERV ICES WOULD NOT ARISE IN INDIA. SECTION 9 SPELLS OUT THE EXTENT TO WHI CH THE INCOME OF THE NON-RESIDENT WOULD BE LIABLE TO TAX IN INDIA. S ECTION 9 HAS A DIRECT TERRITORIAL NEXUS. 22. THEREAFTER, THE ASSESSING OFFICER MADE VARIOUS INQUI RIES FROM THE ASSESSEE REGARDING THE ACTIVITIES CARRIED ON BY THE ASSESSEE WHICH ARE LISTED AT PAGE 13 OF THE ASSESSMENT ORDER. THE ASSESSING OF FICER ALSO CALLED FOR INFORMATION FROM ONGC AND FROM THE INFOR MATION SO RECEIVED, HE FOUND THAT THE ASSESSEE HAD ACTIVELY PARTI CIPATED IN THE BIDDING PROCESS, PRE-BID MEETINGS, NEGOTIATIONS AND SUBM ISSIONS OF THE TENDER DOCUMENTS/PROCESS OF AWARD OF CONTRACT. HE OBSER VED THAT THE ITA NO.5237/DEL/2010 17 PROJECT OFFICE OF THE ASSESSEE AT MUMBAI WAS ALWAYS IN EX ISTENCE, ACTIVELY INVOLVED RIGHT FROM THE KICK OFF MEETING W HICH WAS HELD ON 15 TH FEBRUARY, 2006. IN THE MINUTES OF THE KICK OFF MEET ING, IT WAS MENTIONED THAT THE ONGC HAS INFORMED THE ASSESSEE THAT T HE NEED TO OPEN PROJECT OFFICE IN INDIA IS NECESSARY TO COMPLY WI TH THE CONTRACTUAL REQUIREMENTS AND RESERVE BANK OF INDIA GUIDELINES FOR OBTAINING OF RBI APPROVAL FOR RELEASE OF PAYMENTS IN FOREIGN CURRENCY. HE FURTHER OBSERVED THAT THE CHARGES OF INSURANCE POLICY WAS ALSO T O BE BORNE BY THE ASSESSEE WHICH WAS INCLUDED IN THE CONTRACT PRICE AN D THE INSURANCE FOR THE ENTIRE PROJECT WAS TAKEN BY THE ASSESSE E IN INDIA. THE TITLE WAS TO PASS ON TO ONGC ONLY AFTER THE COMPLE TION OF THE PROJECT AND SUCCESSFUL ACCEPTANCE BY THE ONGC IN INDIA . THE TRANSPORTATION TO THE SITE OF ALL GOODS/MATERIAL WAS TH E RESPONSIBILITY OF THE ASSESSEE. THUS, THE ASSESSING OFFICER OBSERVED THAT ALL THESE THINGS SHOW THAT THE WHOLE PROJECT WAS CARRIED OUT BY THE ASSESSEE IN INDIA. THE CONSIDERATION MENTIONED IN THE CONTRACT IS FOR THE FULL CONTRACT TO BE EXECUTED IN INDIA AND, THEREFORE, IN COME EARNED BY THE ASSESSEE IN RESPECT OF OUTSIDE INDIA ACTIVITY IS LIABLE TO BE TAXED IN INDIA AS PER THE PROVISIONS OF SECTION 5 OF THE ACT AN D ALSO ARTICLE 7 OF DTAA READ WITH ARTICLE 5 AS THE ASSESSEE WAS HAVING PE IN INDIA. 23. AS AGAINST THE ABOVE VIEW OF THE ASSESSING OFFICER, T HE ASSESSEE DENIED TO HAVE ITS LIABILITY TO BE ASSESSED ON THE REVEN UE RELATING TO ACTIVITY CARRIED ON OUTSIDE INDIA BASED ON THE AFOREM ENTIONED DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF ISHIKAWAJIMA HARIMA HEAVY INDUSTRIES CO. LTD. (SUPRA) AND HYUNDAI HEAVY INDUSTRIE S LTD. (SUPRA). IT WAS SUBMITTED THAT THE PAYMENTS WERE TO BE RECEIVED BY THE ASSESSEE AS PER MILESTONE PAYMENT FORMULA WHICH WAS DULY SUPPORT ED BY THE ACHIEVEMENT CERTIFICATES. SO AS IT RELATES TO INSURANC E PREMIUM, IT WAS SUBMITTED THAT INSURANCE EXPENSES WERE INCURRED BY THE ASSESSEE PURELY FOR AND ON BEHALF OF ONGC AND THE SAME HAVE B EEN REIMBURSED ITA NO.5237/DEL/2010 18 TO THE ASSESSEE IN FULL. IT WAS SUBMITTED THAT THE ASSESSEE DID NOT HAVE ANY PROJECT OFFICE IN INDIA PRIOR TO 24 TH MAY, 2006 AS THE PROJECT OFFICE OF THE ASSESSEE HAD COME INTO EXISTENCE ON 24 TH MAY, 2006 AFTER GETTING THE APPROVAL AND THE RBI VIDE LETTER DATED 24 TH MAY, 2006. THE INSTALLATION PE OF THE ASSESSEE CAME INTO EXISTENCE ONLY AFTER 17 TH NOVEMBER, 2007 WHEN THE JACKETS WERE BROUGHT TO THE OFFSHORE SITE FOR INSTALLATION. IT WAS REITERATED THAT REVENUE RELATIN G TO OUTSIDE INDIA ACTIVITY WAS NOT TAXABLE AS PER PROVISIONS OF DTAA. 24. CONSIDERING THESE SUBMISSIONS, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS PLACED HEAVY RELIANCE ON T HE DECISION OF HYUNDAY HEAVY INDUSTRIES LTD. (SUPRA) AND HE NOTED THAT THE ASSESSEE IN THAT CASE HAD OPENED ITS OFFICE IN INDIA SOME TIMES IN 1983 AND SINCE THEN THE ASSESSEE WAS REGULARLY TAKING THE EXEC UTION OF VARIOUS PROJECTS IN INDIA MOST OF WHICH WERE RELATED T O PROJECTS OF ONGC ON HIGH-SEA. THE SAID OFFICE OF THAT ASSESSEE WAS AP PROVED ONLY AS A LIAISON OFFICE AND WAS NOT PERMITTED TO UNDERTAKE ANY BUSINESS ACTIVITY ON BEHALF OF THE ASSESSEE. HOWEVER, THERE WAS DISPUTE WITH THE INCOME-TAX DEPARTMENT IN THIS REGARD. ACCORDING TO THE DEPARTMENT, THE SAID LIAISON OFFICE HAD CROSSED THE BOU ND OF LIAISON OFFICE AND UNDERTOOK THE BUSINESS ACTIVITIES FOR AND ON BEHALF OF THE ASSESSEE. HE ALSO REFERRED TO THE OBSERVATIONS OF THE APE X COURT FROM THE SAID DECISION IN WHICH THEY HAVE OBSERVED THAT THE CONTRACT IN THAT CASE WAS IN TWO PARTS; ONE WAS FOR FABRICATION OF THE P LAT-FORM AND THE OTHER WAS FOR INSTALLATION AND COMMISSIONING OF THE SAID PLAT-FORM IN SOUTH BASSEIN FIELD. IT WAS FURTHER NOTED BY THE APEX COURT THAT THE INDIAN OPERATIONS CONSISTING OF INSTALLATION AND COMMISSI ONING COMMENCED ON 11 TH NOVEMBER, 1986 AND WERE COMPLETED ON 12 TH APRIL, 1987. IT WAS NOTED THAT THE CONTRACT WAS DIVISIBLE AND THE PROFIT & LOSS ACCOUNT WAS PREPARED IN TWO PARTS. ONE FOR THE KOREAN OPERATION AND THE OTHER FOR INDIAN OPERATION. IT WAS ALSO NOTED TH AT FABRICATED ITA NO.5237/DEL/2010 19 PLATFORM WAS HANDED OVER TO ONGC IN KOREA IN SEPTEMB ER, 1987 AND, THEREFORE, BEFORE COMING INTO EXISTENCE OF THE PE OF THE ASSESSEE, THE WORK OF FABRICATION WAS COMPLETED IN KOREA. ACCORDI NG TO THE ASSESSING OFFICER, THE APEX COURT HAS HELD THAT THE TAXA BLE UNIT IS THE FOREIGN COMPANY AND NOT ITS BRANCH OR PE IN INDIA. ASCERTAINMENT OF A FOREIGN ENTERPRISES TAXABLE BUSINESS PROFITS IN INDIA IN VOLVES AN ARTIFICIAL DIVISION BETWEEN PROFITS EARNED IN INDIA A ND PROFITS EARNED OUTSIDE INDIA. REFERRING TO THE OBSERVATIONS OF APEX COURT IN PARA 9 OF THE JUDGEMENT THE ASSESSEE PLACES RELIANCE ON ARTICLE 7 OF CADT AND SUBMITTED THAT ON COMPLETION OF THE WORK OF FABRICAT ION OF PLATFORMS, THE SAME WERE HANDED OVER TO THE AGENTS OF ONGC IN KO REA AND, THEREFORE, THE ASSESSEE WAS NOT LIABLE TO BE TAXED. AND FURTHER OBSERVATIONS IN PARA 11 WE FIND THAT THE PROFITS EARN ED BY KOREAN GE OF SUPPLIES OF FABRICATED PLATFORM CANNOT BE MADE ATT RIBUTABLE TO ITS INDIAN PE AS THE INSTALLATION PE CAME INTO EXISTENCE O NLY AFTER THE TRANSACTION STAGE MATERIALIZE. THE INSTALLATION PE CA ME INTO EXISTENCE ONLY ON COMPLETION OF TRANSACTION GIVING RISE TO THE SUPPLY OF FABRICATED PLATFORM. THE INSTALLATION PE EMERGED ONLY AFTER T HE CONTRACT WITH THE ONGC STOOD CONCLUDED. IT EMERGED ONLY AFTER THE FABR ICATED PLATFORM WAS DELIVERED IN KOREA TO THE AGENTS OF ONGC. THEREF ORE, THE PROFIT ON SUCH SUPPLIES CANNOT BE SAID TO BE ATTRIBUTABLE TO PE. FURTHER HE REFERRED TO THE OBSERVATIONS OF THEIR LORDSHIPS IN PARA 12 IN THE CASE OF TURNKEY PROJECTS, THE PE IS SAID TO BE AT THE INSTALLAT ION STAGES WHILE THE ENTIRE TURNKEY PROJECT, INCLUDING THE SALE OF EQ UIPMENT IS FINALIZED BEFORE THE INSTALLATION STAGE. THE SETTING UP OF PE, IN SUCH A CASE, IS A STAGE SUBSEQUENT TO THE CONCLUSION OF THE CONTRACT. IT IS AS A RESULT OF THE SALE OF EQUIPMENT THAT THE INSTALLATION PE COMES I NTO EXISTENCE. HOWEVER, THIS IS NOT AN ABSOLUTE RULE, IN THE PRESENT C ASE THERE WAS NO ALLEGATION MADE BY THE DEPARTMENT THAT THE PE CAME INTO EXISTENCE EVEN BEFORE THE SALE TOOK PLACE OUTSIDE INDIA. ITA NO.5237/DEL/2010 20 25. FROM THE ABOVE OBSERVATIONS OF THEIR LORDSHIPS, THE ASSESSING OFFICER HAS CULLED OUT THE FACTS AS FOUND IN THAT CASE AS UNDER:- (I) THE CONTRACT WAS IN TWO PARTS, ONE FOR FABRICATI ON OF PLATFORM AND THE OTHER FOR INSTALLATION. (II) THE INSTALLATION PE IN INDIA CAME INTO EXISTENC E ONLY AFTER THE CONCLUSION OF THE CONTRACT FOR SUPPLY OF FA BRICATED PLATFORMS. (III) THE INSTALLATION PE IN INDIA CAME INTO EXISTENC E ONLY AFTER THE CONCLUSION OF THE CONTRACT FOR SUPPLY OF FA BRICATED PLATFORMS. (IV) THERE WAS NO ALLEGATION BY THE DEPARTMENT THAT THE PE CAME INTO EXISTENCE BEFORE THE SALE TOOK PLACE. (V) THE SALE OF FABRICATED PLATFORM TOOK PLACE OUTSID E INDIA. 26. COMPARING THE AFOREMENTIONED FACTS WITH THE CASE OF THE ASSESSEE, LD. ASSESSING OFFICER HAS HELD THAT THE FACTS OF TH E CASE OF THE ASSESSEE ARE MATERIALLY DIFFERENT FROM THE FACTS OF AFOREMENTIONED CASE. THE ASSESSING OFFICER REFERRED TO THE VARIOUS TERMS OF THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH THE ONGC. HE FIRST REFERRED TO THE SCOPE OF THE WORK WHICH DID NOT INCL UDE ANY SALE OR SUPPLY OF MATERIAL TO ONGC AND HAS OBSERVED THAT THE C ONTRACT IN THE PRESENT CASE DOES NOT BEGIN WITH THE INSTALLATION, BUT BEGIN WITH PRE- ENGINEERING AND PRE-CONSTRUCTION SERVICE. THE EFFECT IVE DATE OF COMMENCEMENT OF WORK IS 24 TH JANUARY, 2006. HE REFERRED TO THE CLAUSE 2.3.7 AND FROM THERE HE FOUND THAT IT WAS THE RESPONSIBILITY OF THE CONTRACTOR FROM THE COMMENCEMENT OF THE WORK TI LL THE CERTIFICATE OF COMPLETION AND ACCEPTANCE BY THE ONGC AND THAT T OO IN A CONDITION ITA NO.5237/DEL/2010 21 WHERE THE WORK DONE BY THE CONTRACTOR IS FOUND TO BE IN GOOD ORDER AND CONDITION AND CONFORMED IN EVERY RESPECT THE REQ UIREMENTS OF THE CONTRACT. HE REFERRED TO CLAUSE 3.2 WHICH DESCRIBE TH E MILESTONE PAYMENT FORMULA AND IT IS STATED THEREIN THAT PENDING COMPLETION OF THE WHOLE WORK, PROVISIONAL PROGRESSIVE PAYMENT FOR PA RT OF THE WORKS EXECUTED BY CONTRACTOR WILL BE MADE ON THE BASIS OF W ORK COMPLETED AND SO CERTIFIED BY THE REPRESENTATIVE OF THE COMPANY AND THE SAID CLAUSE ALSO STIPULATES THAT THE PROVISIONAL PAYMENTS WOUL D BE MADE AS PER THE AGREED MILESTONE FORMULA. THE INVOICES WOULD BE RAISED EVERY MONTH ON THE BASIS OF WORK COMPLETED FOR SUCH PROVISION AL PAYMENTS. THUS, REFERRING TO THIS CLAUSE, THE ASSESSING OFFICER FOUN D THAT THE MILESTONE PAYMENTS ARE ONLY PROVISIONAL PAYMENTS AND IT CLEARLY SHOWS THAT CONTRACT IS NOT DIVISIBLE. HE ALSO REFERRED TO C LAUSE RELATING TO OBLIGATION OF THE CONTRACTOR FOR PAYMENT OF CUSTOMS D UTY. HE ALSO REFERRED TO THE CLAUSE 5.4.2 WHICH PROVIDES THAT CONT RACTOR MAY HAVE TO DISMANTLE OR MODIFY ANY EXISTING FACILITY OR EQUIP MENT AND IF IT IS SO DONE THAT WILL BE AT CONTRACTORS OWN COST AND RESPONSI BILITY. UNDER CLAUSE 5.5.1 CONTRACTOR WAS UNDER AN OBLIGATION TO PR OVIDE OFFICE SPACE AND SECRETARIAL SERVICE, ETC. DURING THE TIME OF ENGI NEERING AND DESIGN REVIEW AND, IN THIS MANNER, HE HAS MENTIONED VARIOUS C LAUSES OF THE AGREEMENT AND AFTER ANALYZING ALL THESE CLAUSES, THE A O CONCLUDED THAT THE MAIN THRUST OF THE ARGUMENTS OF THE ASSESSEE WAS THAT IT WAS NOT HAVING ANY PE IN INDIA BEFORE THE WORK OF FABRI CATION GOT COMPLETED AND THE FABRICATED MATERIAL WAS IMPORTED IN INDIA. THE INSTALLATION PE WAS HAVING LIMITED TASK OF INSTALLATION AND COMMISSIONIN G OF THE PROJECT AND THE TITLE TO THE MATERIAL PASSED IN KOREA . EXAMINING SUCH CONTENTION OF THE ASSESSEE, THE AO HAS FRAMED FOLLOWING ISSUES:- (I) WHETHER THE FABRICATED MATERIAL WAS SOLD TO ONGC IN KOREA BEFORE THE PE IN INDIA CAME INTO EXISTENCE. ITA NO.5237/DEL/2010 22 (II) WHETHER THE CONTRACT WAS DIVISIBLE INTO TWO PORT IONS, ONE FOR SUPPLY OF MATERIAL AND OTHER FOR INSTALLATION AND COMMISSIONING. 27. ADVERTING TO THE FIRST ISSUE, THE AO OBSERVED THAT TERMS OF CONTRACT WITH ONGC DID NOT STIPULATE ANY SALE OF MATE RIAL TO THEM. THE PREAMBLE AND THE SCOPE OF WORK STIPULATES VARIOUS WORKS AT THE VASAI EAST DEVELOPMENT PROJECT. THERE MAY BE VARIOUS STAGES IN EXECUTING THE WORK LIKE SURVEY, DESIGNING, FABRICATION, PROCURE MENT AND INSTALLATION AND COMMISSIONING BUT THESE ARE MERE STAGES OF THE TOTAL PROJECT. THE ONGC DOES NOT PURCHASE ANY MATERIAL FRO M THE ASSESSEE. ONGC TAKES OVER THE COMPLETED WORK WHEN ALL PARTS OF THE WORK ARE EXECUTED. THE OWNERSHIP OF THE FABRICATED MATERIAL REMAINED WITH THE CONTRACTOR TILL THE COMPLETE PROJECT WAS HANDED OVER TO THE ONGC. IT IS OBSERVED BY THE AO THAT MAIN RELIANCE OF THE ASSESSEE IS ON SCHEDULE OF MILESTONE PAYMENTS WHICH STIPULATES VALUE OF EACH IT EM, THE CURRENCY IN WHICH SUCH PAYMENT IS TO BE MADE AND ALSO THE STAGE OF PAYMENT. HE OBSERVED THAT AS CLARIFIED BY ONGC, THESE MILESTONE PAYMENTS ARE IN THE NATURE OF PROVISIONAL PROGRESSIVE PAYMENTS PENDING COMPLETION OF WHOLE WORK AS PER CLAUSE 3.2 OF THE AGREEMENT. THE LETTER OF CLARIFICATION OBTAINED FROM ONGC STATE S THAT SUCH ARRANGEMENT IS DONE WITH A VIEW TO PROVIDE ADEQUATE LIQUIDITY OF THE FUNDS TO THE CONTRACTOR AND IT HAS BEEN FURTHER CLARI FIED THAT THE PAYMENT IS MADE IN THE CHOICE OF THE CURRENCY OF THE CONTRACTOR. THE RELIANCE BY THE ASSESSEE ON CLAUSE 7.1.1 TO CONTEND THAT OWNERSHIP GETS TRANSFERRED ON COMPLETION OF FABRICATION OF MATE RIAL AND OWNERSHIP OF MATERIAL WAS TRANSFERRED TO THE COMPANY UPON ISSUANC E OF CERTIFICATE TOWARDS PART COMPLETION OR COMPLETION AN D ACCEPTANCE OF THE WORK IS CLEARLY CONTRARY TO THE CLARIFICATION GI VEN BY ONGC. HE REJECTED THE CONTENTION OF THE ASSESSEE FOR GIVING THE OPPORTUNITY OF CROSS EXAMINATION OF THE OFFICIAL OF THE ONGC WHO HAD GIVEN THE ITA NO.5237/DEL/2010 23 CLARIFICATION AS ACCORDING TO THE AO, THE REPLY GIVE N BY THE OFFICIAL OF ONGC WAS ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. THE AO ALSO OBSERVED THAT THE CLARIFICATION GIVEN BY HIM WAS PUT TO THE ASSESSEE TO COMPLY WITH THE REQUIREMENTS OF PRINCIPLES OF NATURAL JUSTICE AND ASSESSEE HAS NOT GIVEN ANY COGENT REASON TO FIND ANY INFI RMITY IN THE SAID CLARIFICATION. THE COMPLETION OF WORK WAS IN IN DIA, THE HANDING OVER OF COMPLETED WORK WAS ALSO IN INDIA. THE DEPLOY MENT OF MEN AND MATERIAL WAS IN INDIA. THE INSURANCE COVER WAS TAKEN BY THE ASSESSEE IN INDIA. THE IMPORT WAS MADE BY THE ASSESSEE ON ITS OWN ACCOUNT AND CUSTOM DUTY WAS ALSO PAID BY THEM. THE ENTIRE TRANSPOR TATION WAS DONE ON THE CONTRACTORS RISK. THEREFORE, IT IS NOT C OMPREHENSIBLE THAT HOW THE ASSESSEE CAN TAKE THE PLEA THAT THE TITLE OF TH E GOODS PASSED OUTSIDE INDIA. THE FACT THAT ONGC KEPT A CLOSE WATCH ON THE QUALITY OF MATERIAL AND DID APPROVE DESIGN AND QUALITY FROM TIM E TO TIME BY MAKING PERIODICAL INSPECTION AND APPROVING VENDORS ET C., DOES NOT MEAN THAT THE TITLE IN GOODS, UNDER ANY CIRCUMSTANCES, HAD PASSED OUTSIDE INDIA. THE WORK OF FABRICATION AND PROCUREM ENT OF MATERIAL WAS VERY MUCH A PART OF THE CONTRACT FOR EXECUTION O F WORK ASSIGNED BY ONGC. THE WORK WAS WHOLLY EXECUTED BY THE PE IN IND IA AND IT WILL BE ABSURD TO SUGGEST THAT PE IN INDIA WAS NOT ASSOCIATED WIT H THE DESIGNING OR FABRICATION OF MATERIALS. 28. ON THE ASPECT OF QUESTION THAT WHETHER THE CONTRA CT WAS DIVISIBLE INTO TWO PARTS, THE AO OBSERVED THAT CONTRACT IS ON TU RNKEY BASIS WHICH HAS BEEN EXECUTED IN INDIA. THE TITLE IN GOODS AS WEL L AS CONSTRUCTED PIPE LINES WERE TRANSFERRED ONCE THE INDIAN COMPANY A CCEPTS THE PROJECT AS COMPLETE. THE CASE OF THE ASSESSEE HAS NO COM PARISON TO A CASE OF AN ISOLATED SUPPLY CONTRACT. IT IS A CLEAR CASE OF A WORKS CONTRACT EXECUTED IN INDIA WHERE THE ASSESSEE HAS ALSO TH E OBLIGATION OF FABRICATION AND PROCUREMENT OF CERTAIN MATERIAL TO BE USED IN THE WORK. IF ASSESSEES VERSION IS ACCEPTED, IT WILL AMOUNT T O ACCEPTING THE ITA NO.5237/DEL/2010 24 FACT THAT IF A BUILDER IS GIVEN A CONTRACT TO CONSTRU CT FLATS AS PER AGREED TERMS AND THE BUILDER IMPORTS CERTAIN DESIGN AND MATER IAL, HE CLAIMS THAT A PORTION OF HIS INCOME IS EXEMPT FROM TAX ON TH E GROUND THAT SUPPLY IS UNDER A SEPARATE AND DIVISIBLE CONTRACT. HE HAS GIVEN AN EXAMPLE OF A CONTRACT FOR CONSTRUCTION OF A HOUSE WHE RE CONTRACTOR CARRIES ON SURVEY OF THE SITE, MAKES DRAWING AND DESIGNS, PROCURES MATERIAL AND BRINGS IT TO THE SITE AND DOES THE CONSTRU CTION WORK AND HAND OVER THE HOUSE TO THE OWNER AND IN THAT CASE HE CANNOT BE SAID TO HAVE SOLD BRICKS, IRON RODS, CEMENT, WOODEN DOOR, T ILES ETC. BUT HE IS CONSTRUCTING THE HOUSE AND HANDING OVER THE SAME TO TH E OWNER. THE PROCUREMENT OF MATERIAL HAS NO RELEVANCE TO LOCATION FROM WHERE IT HAS BEEN BROUGHT. THE CONTRACTOR MAY IMPORT IT OR PROC URE IT LOCALLY. PROCUREMENT ITSELF MEANS BUYING IT FROM THIRD PARTY A ND THUS, THERE WAS NO BASIS ON WHICH IT COULD BE SAID THAT CONTRACT CO ULD BE DIVIDED INTO TWO PARTS. THE ASSESSEE HAS EXECUTED THE PROJECTS WI TH ONGC ON TURNKEY BASIS. THE SCOPE OF THE PROJECT INCLUDED WORK S RELATING TO PRE- ENGINEERING SURVEYS, DESIGNING, FABRICATION, PROCUREME NT, INSTALLATION AND COMMISSIONING OF THE PROJECT OF LAYING OF THE PIP ELINES. ALL THESE OBLIGATIONS WERE PART OF WORKS, THE SCOPE OF WHICH I S WELL DEFINED IN THE CONTRACT. THE CONTRACT WAS NOT DIVISIBLE. THE O BLIGATIONS AND THE RISK OF THE ASSESSEE CONTINUED TILL THE COMPLETION OF TH E WORK AND GRANT OF COMPLETION CERTIFICATE BY ONGC. THE PE IN INDIA EXISTED FOR THE ENTIRE DURATION OF THE PROJECT WHICH COMMENCED WITH THE KICK OFF MEETING AND ENDED WITH THE COMPLETION OF THE WORK. THE SO CALLED PROJECT OFFICE ACTED AS PE FOR THE INITIAL PART AND LATER THE OPERATIONAL PART WAS EXECUTED BY THE PROJECT OFFICE AT A DIFFERE NT LOCATION. THE TITLE IN THE GOODS PASSED IN INDIA AND PE IN INDIA UTILIZED THE MATERIAL ON ITS OWN ACCOUNT AND ON ITS OWN BEHALF. THUS, THE ENTIRE PROFITS FROM THE WORK UNDER THE CONTRACT ARISE IN INDIA AND ARE LIABL E TO TAX AS SUCH. HE REJECTED THE ALTERNATIVE CONTENTION OF THE ASSESSEE THA T EVEN IF THE RECEIPTS ON ACCOUNT OF OUTSIDE INDIA REVENUES ARE HELD LIABLE TO BE ITA NO.5237/DEL/2010 25 TAXED, THE INCOME CANNOT BE COMPUTED AT MORE THAN 1 0% OF SUCH REVENUES UNDER SECTION 44BB OF THE ACT AND THE AO OB SERVED THAT SUCH CONTENTION OF THE ASSESSEE IS TOTALLY MISCONCEIVED. THE ASSESSEE HAS MAINTAINED ACCOUNTS FOR ITS INDIA OPERATIONS. THE PRO VISIONS OF SECTION 44BB ARE APPLICABLE IN A CASE WHERE SERVICES ARE RENDE RED IN CONNECTION WITH PROSPECTING FOR OR EXTRACTION AND EX PLORATION OF MINERAL OIL. THE PROJECT IS NEITHER FOR PROSPECTING OF MINERAL OIL NOR IS THE ASSESSEE RENDERING ANY SERVICE IN THE EXPLORATION OF MINERAL OIL. THE WORK OF THE ASSESSEE IS INSTALLING A PIPELINE WHICH M AY BE USED BY THE CONTRACTEE FOR EXPLORATION OF OIL BUT AS FAR AS T HE ASSESSEE IS CONCERNED, THEY ARE NOT RENDERING SERVICE IN CONNECT ION WITH THE EXPLORATION OF MINERAL OIL. AT BEST, THE ASSESSEE IS BUI LDING AN INFRASTRUCTURE WHICH MAY BE USED IN THE EXPLORATION. WHILE COMING TO THE COMPUTATION OF INCOME, THE LEARNED AO HAS OBSERVE D THAT ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE THE FOLLOWING EXPENSE S:- (I) RS.28,00,38,791/- ON ACCOUNT OF DIRECT EXPENSES. (II) RS.5,75,18,011/- ON ACCOUNT OF SELLING AND ADMIN ISTRATIVE EXPENSES. (III) RS.21,68,31,926/- ON ACCOUNT OF INDIRECT COST. 29. THESE SUMS WERE DISALLOWED BY THE AO. THE AO FURTH ER OBSERVED THAT THE ASSESSEE HAS DEBITED A SUM OF RS.52,13,79,129/- O N ACCOUNT OF CONTRACTORS COST IN RESPECT OF WHICH TDS HAS NOT BE EN DEDUCTED. HE HAS FURTHER FOUND THAT OUT OF MATERIAL COST, THE V ALUE OF STEEL MATERIAL HAS NOT BEEN GIVEN AND KEEPING IN VIEW ALL THESE FACTS, HE HAS ESTIMATED THE INCOME OF THE ASSESSEE AT THE RATE OF 25% OF THE REVENUE ALLEGEDLY EARNED BY THE ASSESSEE OUTSIDE INDIA A T RS.113,43,78,960/- AND HAS COMPUTED THE INCOME FROM SU CH REVENUE AT RS.28,35,94,740/-. IN THIS MANNER, THE ASSESSMENT OF THE ASSESSEE ITA NO.5237/DEL/2010 26 HAS BEEN FRAMED. THE ASSESSEE IS AGGRIEVED, HENCE HAS FIL ED THE AFOREMENTIONED APPEAL. 30. AFTER NARRATING THE FACTS, IT WAS SUBMITTED BY LEA RNED AR THAT AS PER ARTICLE 7(1) OF THE DTAA BETWEEN INDIA AND KORE A, BUSINESS PROFITS OF KOREAN ENTERPRISE CAN BE TAXED IN INDIA ONLY IF K OREAN ENTERPRISE CARRIES ON A BUSINESS IN INDIA THROUGH A PE SITUATED IN INDIA. THUS, HE SUBMITTED THAT EXISTENCE OF PE IN INDIA IS A SINE QUA N ON TO BRING INTO TAX KOREA ENTITY IN INDIA. HE FURTHER SUBMITTED THA T ARTICLE 5(1) AND (2) DEFINE PERMANENT ESTABLISHMENT AND AS PER PROVISIONS OF ARTICLE 5(1) UNLESS CORE BUSINESS ACTIVITIES ARE CARRIED ON THROUGH A FIXED PLACE IN INDIA, NO PE CAN BE SAID TO HAVE COME INTO EXISTENCE. HE ALSO REFERRED TO THE OECD COMMENTARY, ACCORDING TO WHICH, THE REQ UIREMENTS OF ARTICLE 7 ARE AS UNDER:- 7. FOR A PLACE OF BUSINESS TO CONSTI FOR A PLACE OF BUSINESS TO CONSTI FOR A PLACE OF BUSINESS TO CONSTI FOR A PLACE OF BUSINESS TO CONSTITUTE A PERMANENT TUTE A PERMANENT TUTE A PERMANENT TUTE A PERMANENT ESTABLISHMENT THE ENTERPRISE USING IT MUST CARRY ON ITS BUSINESS ESTABLISHMENT THE ENTERPRISE USING IT MUST CARRY ON ITS BUSINESS ESTABLISHMENT THE ENTERPRISE USING IT MUST CARRY ON ITS BUSINESS ESTABLISHMENT THE ENTERPRISE USING IT MUST CARRY ON ITS BUSINESS WHOLLY OR PARTLY THROUGH IT WHOLLY OR PARTLY THROUGH IT WHOLLY OR PARTLY THROUGH IT WHOLLY OR PARTLY THROUGH IT . AS STATED IN PARAGRAPH 3 ABOVE, THE ACTIVITY NEED NOT BE OF A PRODUCTIVE CHARACTER. FURTHERM ORE, THE ACTIVITY NEED NOT BE PERMANENT IN THE SENSE THAT THERE IS N O INTERRUPTION OF OPERATION, BUT OPERATIONS MUST BE CARR IED OUT ON A BUT OPERATIONS MUST BE CARRIED OUT ON A BUT OPERATIONS MUST BE CARRIED OUT ON A BUT OPERATIONS MUST BE CARRIED OUT ON A REGULAR BASIS. REGULAR BASIS. REGULAR BASIS. REGULAR BASIS. 31. IT WAS FURTHER SUBMITTED THAT EXAMPLES ALSO HAVE BE EN SET OUT IN PARA (2) OF ARTICLE 5 WHICH, IF READ IN JUXTAPOSITIO N WITH THE GENERAL DEFINITION UNDER PARA 1 OF ARTICLE 7, THEN, HERE EX ISTENCE OF PLACE OF MANAGEMENT OR A BRANCH OR AN OFFICE IS NOT SUFFI CIENT TO CONCLUDE THAT THERE EXISTS PERMANENT ESTABLISHMENT OF THE NON-RE SIDENT IN INDIA AND IT HAS TO BE DEMONSTRATED WITH THE EVIDENCE THAT THE BUSINESS OF THE NON-RESIDENT IS WHOLLY OR PARTLY CARRIED ON THROU GH SUCH PLACE OF MANAGEMENT, OFFICE OR BRANCH. REFERENCE IN THIS REG ARD WAS MADE TO THE FOLLOWING COMMENTARY GIVEN WITH REGARD TO PARA 2:- PARAGRAPH 2 12. THIS PARAGRAPH CONTAINS A LIST, BY NO MEANS, E XHAUSTIVE, OF EXAMPLES, EACH OF WHICH CAN BE REGARDED, PRIMA FACI E, AS ITA NO.5237/DEL/2010 27 CONSTITUTING A PERMANENT ESTABLISHMENT. AS THESE EXAMPLE S ARE AS THESE EXAMPLES ARE AS THESE EXAMPLES ARE AS THESE EXAMPLES ARE TO BE SEEN AGAINST THE BACKGROUND OF THE GENERAL DE FINITION GIVEN TO BE SEEN AGAINST THE BACKGROUND OF THE GENERAL DE FINITION GIVEN TO BE SEEN AGAINST THE BACKGROUND OF THE GENERAL DE FINITION GIVEN TO BE SEEN AGAINST THE BACKGROUND OF THE GENERAL DE FINITION GIVEN IN PARAGRAPH 1, IT IS ASSUMED THAT THE CON IN PARAGRAPH 1, IT IS ASSUMED THAT THE CON IN PARAGRAPH 1, IT IS ASSUMED THAT THE CON IN PARAGRAPH 1, IT IS ASSUMED THAT THE CONTRACTING STATE S INTERPRET TRACTING STATES INTERPRET TRACTING STATES INTERPRET TRACTING STATES INTERPRET THE TERMS LISTED, A PLACE OF MANAGEMENT, A BRAN CH, AN THE TERMS LISTED, A PLACE OF MANAGEMENT, A BRAN CH, AN THE TERMS LISTED, A PLACE OF MANAGEMENT, A BRAN CH, AN THE TERMS LISTED, A PLACE OF MANAGEMENT, A BRAN CH, AN OFFICE, ETC. IN SUCH A WAY THAT SUCH PLACES CONSTI TUTE PERMANENT OFFICE, ETC. IN SUCH A WAY THAT SUCH PLACES CONSTI TUTE PERMANENT OFFICE, ETC. IN SUCH A WAY THAT SUCH PLACES CONSTI TUTE PERMANENT OFFICE, ETC. IN SUCH A WAY THAT SUCH PLACES CONSTI TUTE PERMANENT ESTABLISHMENTS ONLY IF THEY MEET THE REQUIREMENTS O F PARAGRAPH ESTABLISHMENTS ONLY IF THEY MEET THE REQUIREMENTS O F PARAGRAPH ESTABLISHMENTS ONLY IF THEY MEET THE REQUIREMENTS O F PARAGRAPH ESTABLISHMENTS ONLY IF THEY MEET THE REQUIREMENTS O F PARAGRAPH 1. 1.1. 1. ******* ********* ********* 11. A PERMANENT ESTABLISHMENT BEGINS TO EXIST WHEN THE A PERMANENT ESTABLISHMENT BEGINS TO EXIST WHEN THE A PERMANENT ESTABLISHMENT BEGINS TO EXIST WHEN THE A PERMANENT ESTABLISHMENT BEGINS TO EXIST WHEN THE ENTERPRISE COMMENCES TO CARRY ON ITS BUSINESS THROU GH A FIXED ENTERPRISE COMMENCES TO CARRY ON ITS BUSINESS THROU GH A FIXED ENTERPRISE COMMENCES TO CARRY ON ITS BUSINESS THROU GH A FIXED ENTERPRISE COMMENCES TO CARRY ON ITS BUSINESS THROU GH A FIXED PLACE OF BUSINESS. THIS IS THE CASE ONCE THE ENTER PRISE PREPARES PLACE OF BUSINESS. THIS IS THE CASE ONCE THE ENTER PRISE PREPARES PLACE OF BUSINESS. THIS IS THE CASE ONCE THE ENTER PRISE PREPARES PLACE OF BUSINESS. THIS IS THE CASE ONCE THE ENTER PRISE PREPARES THE ACTIVITY FOR WHICH THE FACILITY IS PERMANENTLY TO BE USED. THE ACTIVITY FOR WHICH THE FACILITY IS PERMANENTLY TO BE USED. THE ACTIVITY FOR WHICH THE FACILITY IS PERMANENTLY TO BE USED. THE ACTIVITY FOR WHICH THE FACILITY IS PERMANENTLY TO BE USED. THE PERIOD OF TIME DURING WHICH THE FIXED PLACE OF BUSINE SS ITSELF IS BEING SET UP BY THE ENTERPRISE SHOULD NOT BE COUNTED, P ROVIDED THAT THIS ACTIVITY DIFFERS SUBSTANTIALLY FROM THE ACTIVITY F OR WHICH THE PLACE OF BUSINESS IS TO SERVE PERMANENTLY. THE P ERMANENT ESTABLISHMENT CEASES TO EXIST WITH THE DISPOSAL OF THE FIX ED PLACE OF BUSINESS OR WITH THE CESSATION OF ANY ACTIVITY THROUGH IT, THAT IS WHEN ALL ACTS AND MEASURES CONNECTED WITH THE FO RMER ACTIVITIES OF THE PERMANENT ESTABLISHMENT ARE TERMINATED (WINDING UP CURRENT BUSINESS TRANSACTIONS, MAINTENANCE AND REPAIR OF FACILITIES). 32. HE ALSO REFERRED TO THE DECISION OF DELHI TRIBUNA L IN THE CASE OF R&B FALCON OFFSHORE LTD. VS. ACIT IN ITA NOS.389/DEL/2 005 AND 4752- 4753/DEL/2005 TO CONTEND THAT MERE EXISTENCE OF AN O FFICE IS NOT SUFFICIENT TO HOLD THAT SUCH OFFICE CONSTITUTED PE OF THE NON-RESIDENT IN INDIA AND IT MUST BE DEMONSTRATED THAT EVIDENCE THAT BUSINESS OF THE NON-RESIDENT IS WHOLLY OR PARTLY CARRIED ON THROUGH SUCH PLACE OF MANAGEMENT OFFICE OR BRANCH. REFERENCE IN TH IS REGARD WAS MADE TO PARA 9 OF THE SAID ORDER. 33. HE FURTHER REFERRED TO ARTICLE 5 (4) OF DTAA AN D CONTENDED THAT FIXED PLACE OF BUSINESS IN INDIA CARRYING ON THE WORK WHICH IS OF PREPARATORY OR AUXILIARY IN NATURE VIS-A-VIS BUSINESS OF NON-RESIDENT WOULD NOT BE CONSTRUED AS RESULTING IN PE IN INDIA. H E SUBMITTED THAT ACCORDING TO THE FACTS OF THE CASE, THE ASSESSEE ALONG WI TH THE L&T WAS AWARDED VED PROJECT BY ONGC ON 28 TH FEBRUARY, 2006. AT THE INSTANCE ITA NO.5237/DEL/2010 28 OF ONGC THE ASSESSEE OPENED A PROJECT OFFICE IN INDIA. APPLICATION WAS MADE TO RBI AND APPROVAL WAS GRANTED BY RBI ON 24 TH MAY, 2006. THE ASSESSEE EMPLOYED ONLY TWO PERSONS, NAMELY, MR. S.S. PARK (MBA) AND MR. RAVINDER D JOSHI (ACCOUNTANT) AT THE PROJECT OFF ICE. BOTH OF THEM ARE NON-TECHNICAL PEOPLE AND WERE ENTRUSTED TO ACT A S INTERFACE/COMMUNICATION CHANNEL BETWEEN THE ASSESSEE AN D ONGC. PRE-CONTRACT MEETING WAS HELD IN JANUARY AND FEBRUAR Y, 2006 WHICH COULD NOT HAVE BEEN CARRIED OUT BY THE PROJECT OFFI CE WHICH CAME INTO EXISTENCE ONLY IN MAY, 2006. THE PERSONNEL DEPUTED A T THE PROJECT OFFICE DID NOT HAVE THE TECHNICAL COMPETENCE TO CAR RY OUT THE WORK UNDER THE CONTRACT WITH ONGC. 34. HE FURTHER SUBMITTED THAT THE ACTIVITIES LIKE PR E-ENGINEERING SURVEY, ETC. WERE CARRIED OUT THROUGH CONTRACTORS, VI Z. FUGRO GEONICS (P) LTD., AND OFFSHORE HOOK-UP AND CONSTRUCTION SERVI CES INDIA (P) LTD., WHO WERE AWARDED CONTRACTS BY THE KOREAN HEAD OFFICE . THE SAID ACTIVITIES WERE CARRIED OUT FOR A PERIOD OF 1-3 DAYS AND THAT TOO TO FACILITATE THE DESIGN, ENGINEERING AND FABRICATION A CTIVITIES BEING CARRIED OUT OUTSIDE INDIA. THERE IS NO EVIDENCE ON R ECORD TO PROVE THAT THE SAID ACTIVITIES WERE CARRIED ON THROUGH PROJECT O FFICE OF THE ASSESSEE AND NO SUCH FINDING HAVE BEEN RECORDED EITHER I N THE ASSESSMENT ORDER OR IN THE ORDER PASSED BY THE DRP THAT SU CH ACTIVITIES ARE EITHER CONDUCTED THROUGH THE PROJECT OFFICE OR THE PROJECT OFFICE HAD ANY ROLE IN FACILITATING SUCH ACTIVITY. THESE ACTIVITIES WERE FOR UN-SUBSTANTIAL PERIOD OF TIME DURING THE RELEVANT PREVIOUS YEAR AND NO OTHER ACTIVITY WAS CARRIED OUT. IF INSURANCE COST OF 22.66 CRORE IS EXCLUDED FROM THE TOTAL EXPENDITURE OF 23.9 CRORE I NCURRED DURING THE RELEVANT PREVIOUS YEAR, THE EXPENDITURE INCURRED IN INDIA IN RELATION TO THE PROJECT WAS ONLY RS.1.3 CRORE WHICH IS LESS THAN 1% OF THE REVENUE RELATABLE TO THE ACTIVITY TO BE PERFORMED IN INDIA AND ON THAT GROUND ALSO IT CANNOT BE ALLEGED THAT ANY SUBSTANTIAL ACTIVIT Y WAS CARRIED OUT IN ITA NO.5237/DEL/2010 29 INDIA, LEAVE ASIDE THE SAME HAVING BEEN CONDUCTED THR OUGH THE PROJECT OFFICE. 35. THE NATURE OF EXPENSES INCURRED BY THE PROJECT OF FICE THE COPY OF WHICH IS PLACED AT PAGE 521 OF THE PAPER BOOK-I WOUL D SHOW THAT THE SAME WERE IN THE NATURE OF GENERAL ADMINISTRATIVE EX PENSES LIKE RENT, TELEPHONE, PRINTING, SALARY, ETC. AND NO TECHNICAL W ORK WAS CARRIED OUT BY THE PROJECT OFFICE. 36. IT WAS FURTHER SUBMITTED THAT THE PROJECT OFFICE WAS TO ACT ONLY AS A COMMUNICATION CHANNEL BETWEEN THE ONGC AND THE ASSE SSEE FOR THE PURPOSE INTER ALIA, RECOVERING INVOICES RECEIVED BY T HE HEAD OFFICE ON ONGC AND PASSING THEM ON TO ONGC, RECURRING MILESTONE COMPLETION CERTIFICATES FROM ONGC AND TRANSMITTING THE SAME TO HE AD OFFICE, ARRANGING SECURITY CLEARANCE AS AND WHEN REQUIRED FO R PERSONNEL AND EQUIPMENT. HE SUBMITTED THAT THERE IS NO EVIDENCE ON RECORD TO SUGGEST THAT THE PROJECT OFFICE HAD UNDERTAKEN ANYTHI NG APART FROM ACTING AS AN INTERFACE BETWEEN THE ASSESSEE AND ONGC. H E SUBMITTED THAT EVEN IF IT IS ADMITTED THAT SOME ACTIVITY WAS UND ERTAKEN FROM THE PROJECT OFFICE, THE SAID ACTIVITY BEING PREPARATORY AND AUXILIARY IN NATURE VIS-A-VIS THE SCOPE OF THE OVERALL PROJECT WHI CH INCLUDED INTER ALIA ALL DESIGN, ENGINEERING, FABRICATION AND INSTALL ATION, THE PROJECT OFFICE CANNOT BE TREATED AS PE OF THE ASSESSEE IN INDIA IN VIEW OF THE CLEAR MANDATE OF ARTICLE 5 (4) OF DTAA. 37. THEN, LD. AR REFERRED TO THE PROVISIONS OF ARTICL E 5 (3) AND HIS CONTENTION IS THAT THE SAME BEING SPECIAL PROVISION HAS OVERRIDING EFFECT OVER OTHER PROVISIONS. HE SUBMITTED THAT THE W ORK TO BE PERFORMED BY THE ASSESSEE IN INDIA RELATED TO INSTALLATI ON OF PLATFORMS WHICH WERE DESIGNED AND FABRICATED OUTSIDE INDIA AND ALSO HOOK UP AND COMMISSIONING OF THE SAID PLATFORM WITH THE EXISTIN G ONES AFTER MODIFICATION. THUS, THE ASSESSEE HAD UNDERTAKEN TO EXEC UTE AN ITA NO.5237/DEL/2010 30 INSTALLATION PROJECT IN INDIA AND, THEREFORE, WHAT W AS RELEVANT TO DETERMINE WAS WHETHER THE ASSESSEE HAD AN INSTALLATION P E IN INDIA IN TERMS OF ARTICLE 5(3) OF THE DTAA AND NOT FIXED PLAC E PE. 38. HE ALSO REFERRED TO THE REVISED OECD COMMENTARY W HICH STATE THAT ENTERPRISES IN INDIA ENGAGED IN CONSTRUCTION/INSTA LLATION ACTIVITIES ARE MORE APPROPRIATELY COVERED UNDER ARTICLE 5(3). IN SUCH A CASE IT IS ESSENTIAL THAT INSTALLATION ACTIVITIES SHOULD HAVE COMME NCED AND THAT SUCH ACTIVITY CARRIES FOR MORE THAN THE THRESHOLD PERI OD PRESCRIBED IN THE APPLICABLE DTAA IN ORDER TO CONSTITUTE A PE IN T HE SOURCE OF JURISDICTION. THE RELEVANT EXTRACT FROM THE SAID COMM ENTARY WAS REFERRED TO AS BELOW:- 16. THIS PARAGRAPH PROVIDES EXPRESSLY THAT A BUILDIN G SITE OR CONSTRUCTION OR INSTALLATION PROJECT CONSTITUTES A PERMANEN T ESTABLISHMENT ONLY IF IT LASTS MORE THAN TWELVE MONTHS. A NY OF ANY OF ANY OF ANY OF THOSE ITEMS WHICH DOES NOT MEET THIS CONDITION DOES NOT ITSELF THOSE ITEMS WHICH DOES NOT MEET THIS CONDITION DOES NOT ITSELF THOSE ITEMS WHICH DOES NOT MEET THIS CONDITION DOES NOT ITSELF THOSE ITEMS WHICH DOES NOT MEET THIS CONDITION DOES NOT ITSELF CONSTITUTE A PERMANENT ESTABLISHMENT, E CONSTITUTE A PERMANENT ESTABLISHMENT, E CONSTITUTE A PERMANENT ESTABLISHMENT, E CONSTITUTE A PERMANENT ESTABLISHMENT, EVEN IF THERE IS WITHIN IT AN VEN IF THERE IS WITHIN IT AN VEN IF THERE IS WITHIN IT AN VEN IF THERE IS WITHIN IT AN INSTALLATION, FOR INSTANCE AN OFFICE OR A WORKSHOP WITHIN THE INSTALLATION, FOR INSTANCE AN OFFICE OR A WORKSHOP WITHIN THE INSTALLATION, FOR INSTANCE AN OFFICE OR A WORKSHOP WITHIN THE INSTALLATION, FOR INSTANCE AN OFFICE OR A WORKSHOP WITHIN THE MEANING OF PARAGRAPH 2, ASSOCIATES WITH THE CONSTRUCTION ACTIVITY. MEANING OF PARAGRAPH 2, ASSOCIATES WITH THE CONSTRUCTION ACTIVITY. MEANING OF PARAGRAPH 2, ASSOCIATES WITH THE CONSTRUCTION ACTIVITY. MEANING OF PARAGRAPH 2, ASSOCIATES WITH THE CONSTRUCTION ACTIVITY. WHERE, HOWEVER, SUCH AN OFFICE OR WORKSHOP IS USED FOR A NUMBER WHERE, HOWEVER, SUCH AN OFFICE OR WORKSHOP IS USED FOR A NUMBER WHERE, HOWEVER, SUCH AN OFFICE OR WORKSHOP IS USED FOR A NUMBER WHERE, HOWEVER, SUCH AN OFFICE OR WORKSHOP IS USED FOR A NUMBER OF CONSTRUCTION PROJECTS AND THE OF CONSTRUCTION PROJECTS AND THE OF CONSTRUCTION PROJECTS AND THE OF CONSTRUCTION PROJECTS AND THE ACTIVITIES PERFOR MED THEREIN GO ACTIVITIES PERFORMED THEREIN GO ACTIVITIES PERFORMED THEREIN GO ACTIVITIES PERFORMED THEREIN GO BEYOND THOSE MENTIONED IN PARAGRAPH 4, IT WILL BE C ONSIDERED A BEYOND THOSE MENTIONED IN PARAGRAPH 4, IT WILL BE C ONSIDERED A BEYOND THOSE MENTIONED IN PARAGRAPH 4, IT WILL BE C ONSIDERED A BEYOND THOSE MENTIONED IN PARAGRAPH 4, IT WILL BE C ONSIDERED A PERMANENT ESTABLISHMENT IF THE CONDITIONS OF THE AR TICLE ARE PERMANENT ESTABLISHMENT IF THE CONDITIONS OF THE AR TICLE ARE PERMANENT ESTABLISHMENT IF THE CONDITIONS OF THE AR TICLE ARE PERMANENT ESTABLISHMENT IF THE CONDITIONS OF THE AR TICLE ARE OTHERWISE MET EVEN IF NONE OF THE PROJECTS INVOLVE BUILDING SITE OR OTHERWISE MET EVEN IF NONE OF THE PROJECTS INVOLVE BUILDING SITE OR OTHERWISE MET EVEN IF NONE OF THE PROJECTS INVOLVE BUILDING SITE OR OTHERWISE MET EVEN IF NONE OF THE PROJECTS INVOLVE BUILDING SITE OR CONSTRUCTION OR INSTALLATION PR CONSTRUCTION OR INSTALLATION PR CONSTRUCTION OR INSTALLATION PR CONSTRUCTION OR INSTALLATION PROJECT THAT LASTS MOR E THAN 12 OJECT THAT LASTS MORE THAN 12 OJECT THAT LASTS MORE THAN 12 OJECT THAT LASTS MORE THAN 12 MONTHS. MONTHS. MONTHS. MONTHS. 39. LD. AR FURTHER REFERRED TO THE DECISION OF THE D ELHI TRIBUNAL IN THE CASE OF HYUNDAI HEAVY INDUSTRIES (2009) 31 SOT 482 WHE REIN IT WAS HELD THAT MERE EXISTENCE OF A PROJECT OFFICE COULD N OT BE HELD TO BE CONSTITUTING PE, GIVEN THE NATURE OF THE CONTRACT WH ICH WAS PRE- DOMINANTLY IN THE NATURE OF INSTALLATION PROJECT. REFERENCE WAS MADE TO THE OBSERVATIONS OF THE TRIBUNAL IN PARA 10 AND 11 OF THE SAID ORDER. IT WAS SUBMITTED THAT IN THE PRESENT CASE THE WORK TO B E UNDERTAKEN BY THE ASSESSEE WAS UNDISPUTEDLY IN THE NATURE OF AN INSTALLA TION PROJECT, THEREFORE, MERE EXISTENCE OF PROJECT OFFICE IS NOT SUF FICIENT TO CONSTITUTE PE. INSTALLATION PE CAN BE SAID TO HAVE COME INTO EX ISTENCE ONLY IF ITA NO.5237/DEL/2010 31 INSTALLATION ACTIVITY HAD COMMENCED DURING THE RELEV ANT PREVIOUS YEAR. HE SUBMITTED THAT ON THE FACTS, IN THE PRESENT CASE, T HE FABRICATION, DESIGN AND ENGINEERING OF THE PLATFORM AND JACKET WA S SUB-CONTRACTED TO AKER MALAYSIA AND THE SAID ACTIVITY WAS CARRIED ON OUTSIDE AND REFERENCE IN THIS REGARD WAS MADE TO PAGE 323 TO 325 OF THE PAPER BOOK AND ALSO 568 ONWARDS OF THE PAPER BOOK II WHERE INVOICES AND COMPLETION CERTIFICATE ISSUED BY ONGC HAVE BEEN PLACE D. HE SUBMITTED THAT JACKETS AFTER FABRICATION OUTSIDE INDIA STARTED ARRIVING IN INDIA ONLY IN NOVEMBER, 2007 AND, THEREFORE, THE IN STALLATION ACTIVITY COULD NOT BE SAID TO HAVE COMMENCED PRIOR THERETO. AS INSTALLATION PE HAVING NOT COME INTO EXISTENCE DURING THE RELEVANT P REVIOUS YEAR, NO PART OF INCOME IS LIABLE TO BE TAXED IN INDIA. THER EFORE, THE ASSESSING OFFICER IS WRONG IN APPLYING THE PROVISIONS OF SECTION 5 (1) OF DTAA TO HOLD THAT THE ASSESSEE HAD FIXED PLACE PE IN INDIA DURI NG THE RELEVANT PREVIOUS YEAR IN THE FORM OF A PROJECT OFFICE. IN TH IS MANNER, LD. AR OF THE ASSESSEE HAS CONCLUDED HIS ARGUMENT WITH RESPECT TO TH E POINT TO CONTEND THAT THE ASSESSEES PE DID NOT EXIST IN INDIA DUR ING THE YEAR UNDER CONSIDERATION, HENCE, NO PART OF ASSESSEES ACTIVIT Y RELATING TO OUTSIDE INDIA OPERATION COULD BE BROUGHT TO TAX BY T HE ASSESSING OFFICER. 40. ON THE OTHER HAND, IT WAS SUBMITTED BY LD. DR THA T THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN THE PRESENT CASE IS IN RESPECT OF TWO MAIN ISSUES: (I) ABOUT EXISTENCE OF PE; AND (II) A BOUT ATTRIBUTION OF PROFITS TO SUCH PE. IT WAS SUBMITTED THAT HONBLE BEN CH HAS PROPOSED TO DECIDE FIRST THE EXISTENCE OR OTHERWISE OF PE AND H IS ARGUMENTS FOR THIS ISSUE ARE AS UNDER. 41. IT WAS SUBMITTED BY LD. DR THAT THE VERY FACT THA T THE ASSESSEE HAD FILED ITS RETURN OF INCOME IS SUFFICIENT TO ESTABLI SH THAT THE ASSESSEE WAS CONSCIOUS OF THE FACT THAT ITS PE IS IN EXISTENCE IN INDIA. HE SUBMITTED THAT AS PER ARTICLE 7 OF THE DTAA A NON-RESI DENT ENTERPRISE IS ITA NO.5237/DEL/2010 32 TAXABLE IN INDIA ONLY IF THERE EXIST A PE IN INDIA. HE SUBMITTED THAT LEARNED COUNSEL OF THE ASSESSEE MADE A STATEMENT THAT IN ITS RETURN OF INCOME ONLY INCOME FROM INSIDE INDIA ACTIVITY HAS BEE N DECLARED AND, THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE WAS CONSCIO US OF EXISTENCE OF PE. HE SUBMITTED THAT THE SAID STATEMENT OF LD. COUNSEL IS LEGALLY INCORRECT AS IT IS AGAINST THE VERY FIRST PRINC IPLE CONTAINED IN ARTICLE 7 OF DTAA WHICH STATES THAT NON-RESIDENT ENTER PRISE CAN BE TAXED IN INDIA ONLY IF PE EXIST IN INDIA. HE SUBMITT ED THAT THIS IS TRUE FOR ANY KIND OF BUSINESS INCOME WHETHER FROM INSIDE INDIA A CTIVITY OR OUTSIDE INDIA ACTIVITY. ACCORDING TO ARTICLE 7 EVEN INCOME FROM INSIDE INDIA ACTIVITY IS NOT TAXABLE IF THERE IS NO PE IN IN DIA. THE VERY FACT THAT THE ASSESSEE HAS FURNISHED INCOME TAX RETURN DECLARING IN COME FROM INSIDE INDIA ACTIVITY INDICATES THAT THE ASSESSEE HAS NO D OUBT IN ITS MIND ABOUT THE EXISTENCE OF PE IN INDIA PARTICULARL Y WHEN IT HAS NOT GIVEN ANY NOTE IN ITS RETURN OF INCOME IN THIS REGARD . HE REFERRED TO PAGE 321 OF THE PAPER BOOK WHICH IS MINUTES OF BOARD OF DIRECTORS MEETING SIGNED BY THE PRESIDENT & CEO OF THE ASSESSEE AND COPY OF SUCH MINUTES IS PLACED AT PAGE 321 OF THE PAPER BOOK. HE SUBMITTED THAT THE CONTENTS OF THE SAID MINUTES ARE AS UNDER:- THE CO. HEREBY OPEN ONE PROJECT OFFICE IN MUMBAI, INDIA FOR CO-ORDINATION AND EXECUTION OF VASAI EAST DEVELOPM ENT PROJECT FOR ONGC. THAT THE CO. HEREBY DOES MAKE, CONSTITUTE AND MR. SANGSOON PARK YARD GENERAL MANAGER OF THE CO., AS THE COMPANYS TRUE AND LAWFUL REPRESENTATIVE WITH FULL POWE R AND AUTHORITY OF THE PURPOSE OF ESTABLISHING A PROJECT OFFIC E AND CO- ORDINATING AND EXECUTING DELIVERY DOCUMENTS IN CONNECTI ON WITH CONSTRUCTION OF OFFSHORE PLATFORM AND MODIFICATION OF E XISTING FACILITIES FOR ONGC ABOVE. 42. LD. DR FURTHER REFERRED TO PAGE 323 OF THE PAPE R BOOK WHICH IS A LETTER DATED 25 TH MAY, 2006 AND WHICH IS AN APPROVAL FROM RBI REGARDING SUCH PROJECT OFFICE. HE SUBMITTED THAT THI S APPROVAL ITA NO.5237/DEL/2010 33 INDICATES THAT THERE IS A PROJECT OFFICE OPENED IN MU MBAI FOR CARRYING ON AND EXECUTION OF CONTRACT WITH ONGC. THEREFORE, SHE SUBMITTED THAT PROJECT OFFICE IS PE UNDER ARTICLE 5(1) OF DTAA AND HE REFERRED TO THE ARTICLE 5 (1) OF DTAA WHICH READ AS UNDER:- FOR THE PURPOSES OF THIS CONVENTION, THE TERM PERMANENT ESTABLISHMENT MEANS A FIXED PLACE OF BUSINESS THROUGH WHICH BUSINESS OF ENTERPRISE IS WHOLLY OR PARTLY CARRIED ON . 43. THEREFORE, LD. DR SUBMITTED THAT THERE ARE TWO R EQUIREMENTS FOR EXISTENCE OF PE UNDER ARTICLE 5 (1); ONE IS THAT THER E SHOULD BE A FIXED PLACE OF BUSINESS AND THE SECOND IS THAT BUSINESS OF THE EN TERPRISE SHOULD BE WHOLLY OR PARTLY CARRIED ON THROUGH THAT F IXED PLACE. HE SUBMITTED THAT AS PROJECT OFFICE IS A FIXED PLACE HAVI NG AN ADDRESS IN MUMBAI, THEREFORE, THE FIRST CONDITION IS SATISFIED. TH E RESOLUTION OF BOARD OF DIRECTORS THAT THIS PROJECT OFFICE IS OPENED FOR CARRYING ON AND EXECUTION OF CONTRACT WITH ONGC IS AN ADMISSION ON BEH ALF OF THE CONTRACTOR THAT THE CONTRACT WITH ONGC IS EXECUTED T HROUGH ITS PROJECT OFFICE AND SUCH A SITUATION SATISFIES THE SECOND CONDITIO N ALSO. THEREFORE, HE SUBMITTED THAT THE PROJECT OFFICE OF T HE ASSESSEE IN MUMBAI FULFILLS THE CONDITION LAID DOWN FOR EXISTENCE OF PE IN INDIA AS PER ARTICLE 5(1) OF THE DTAA. 44. HE SUBMITTED THAT LD. AR OF THE ASSESSEE HAS CONTENDE D THAT NO ACTIVITY WAS DONE THROUGH PROJECT OFFICE IN RELATION TO CONTRACT AND IN FACT PROJECT OFFICE WAS OPENED AT THE INSISTENCE OF ON GC; THE LETTER FROM BOARD OF DIRECTOR OF THE COMPANY IS JUST A FORMA LITY AND THE PROJECT OFFICE WAS NEVER INTENDED TO BE USED FOR CO-O RDINATION AND EXECUTION OF THE CONTRACT; THE PROJECT OFFICE WAS MA NNED BY ONLY SKELETAL STAFF AND IT WAS USED FOR EXCHANGE OF COMMUNIC ATION BETWEEN ONGC AND ASSESSEE COMPANY IN KOREA. HE FURTHER SUBMITTED THAT ID. AR HAS EXPLAINED THAT DOCUMENTS LIKE APPROVAL FOR MIL E STONE PAYMENTS WERE ROUTED THROUGH THE PROJECT OFFICE AND HE HAS FURTHER ITA NO.5237/DEL/2010 34 CONTENDED THAT WHATEVER ACTIVITIES WERE DONE THROUGH PROJECT OFFICE ARE IN NATURE OF AUXILIARY OR PREPARATORY IN NATURE AND HENCE PROJECT OFFICE DOES NOT CONSTITUTE PE; THE PROJECT OFFICE WAS USED FOR ARRANGING SECURITY PASS FOR VISITING OFFICIALS OF THE COMPANY WHIC H DOES NOT AMOUNT TO CARRYING ON OF BUSINESS OF CONTRACT; THAT TH E ASSESSING OFFICER HAS NOT PUT UP ANY POSITIVE EVIDENCE TO PROVE THAT SOME COMMERCIAL ACTIVITIES WERE DONE IN THE PROJECT OFFIC E. LD. DR SUBMITTED THAT IN THIS MANNER, LD. AR HAS TRIED TO COMPARE LIAI SON OFFICE WITH PROJECT OFFICE AND CONTENDED THAT COURTS HAVE HELD T HAT UNLESS IT IS PROVED THAT SOME COMMERCIAL ACTIVITY IS DONE IN LO, I T DOES NOT CONSTITUTE PE. HE SUBMITTED THAT SUCH ARGUMENTS OF LD. AR CANNOT BE ACCEPTED BECAUSE RESOLUTION OF THE BOARD OF DIRECTORS IS A POSITIVE EVIDENCE TO SHOW THAT PROJECT OFFICE WAS OPENED FOR C O-ORDINATION AND EXECUTION OF CONTRACT WITH ONGC AND VIDE THE SAID RE SOLUTION, THE ASSESSEE HAS APPOINTED A LAWFUL REPRESENTATIVE FOR CO-ORD INATION WITH ONGC. HE SUBMITTED THAT IN VIEW OF SUCH POSITIVE EVIDE NCE WHICH AMOUNTS TO SELF ADMISSION ON THE PART OF THE ASSESSEE, WHAT ELSE WILL BE REQUIRED TO BE PROVED THE EXISTENCE OF PE BY THE AO. HE SUBMITTED THAT LD. AR HAS ALSO NOT LED ANY EVIDENCE TO ESTABLISH THAT THE POSITIVE ASSERTION BY BOARD OF DIRECTORS WAS INCORRECT OR WAS NOT MEANT TO BE SO. THE TERMS OF CONTRACT CLEARLY INDICATE THAT THERE WILL BE CONTINUOUS CO-ORDINATION BETWEEN ONGC AND THE ASSESSEE WHICH IS REQ UIRED AT ALL THE STAGES OF EXECUTION OF CONTRACT. 45. HE REFERRED TO PARA 2.3.4.1 OF THE CONTRACT WH ICH SAYS THAT THE COMPANY AND THE CONTRACTOR SHALL DISCUSS AND AGREE UPON THE WORK PROCEDURES TO BE FOLLOWED FOR EFFECTIVE EXECUTION OF THE WORK. REFERRING TO PARA 2.3.5.1 OF CONTRACT, HE SUBMITTED THAT THE C ONTRACTOR SHALL AUTHORISE THE SUPERVISOR OR HIS REPRESENTATIVE TO RECEIV E DIRECTIONS AND INSTRUCTIONS FROM THE COMPANY'S REPRESENTATIVES OR ENGIN EER'S REPRESENTATIVES. HE SUBMITTED THAT AS MENTIONED EARLIE R, THE RESOLUTION OF THE BOARD OF DIRECTORS HAS APPOINTED A R EPRESENTATIVE FOR ITA NO.5237/DEL/2010 35 THE PURPOSES OF CO-ORDINATION WITH ONGC. LD. DR FURTH ER REFERRED TO PARA 5.1.7.2 WHICH IS REGARDING REVIEW AND APPROVAL OF DESIGN AND ENGINEERING WHICH SAYS THAT DESIGN AND ENGINEERING SHAL L BE REVIEWED AND APPROVED BY ONGC CONTINUOUSLY. PARA 5.1.9 IS REGA RDING DRAWING AND SPECIFICATION RECORDS WHICH STIPULATES THAT ALL DRA WINGS, SPECIFICATIONS AND DATA SHEETS SHALL BE APPROVED BY THE ONGC. PARA 5.1.10 SAYS THAT EVEN PURCHASES TO BE MADE BY ASSESSEE COMP ANY WERE TO BE APPROVED BY ONGC. HE SUBMITTED THAT THESE TERMS OF CONTRACT CLEARLY INDICATE THAT ONGC HAS TO BE CONTIN UOUSLY IN CO- ORDINATION WITH ASSESSEE COMPANY AND FOR THIS PURPOSE ASSE SSEE COMPANY HAS APPOINTED A REPRESENTATIVE IN ITS PROJECT OFFICE. THEREFORE, HE CONTENDED THAT THE PROJECT OFFICE IS MEANT FOR CONTINUOUS CO-ORDINATION WITH ONGC WHICH IS IMPORTANT PART OF THE CONTRACT, THEREFORE, OBVIOUSLY, THESE ACTIVITIES ARE N OT AUXILIARY OR PREPARATORY IN NATURE AS THESE ARE VITAL PART OF CONT RACT ITSELF AND WITHOUT THESE, CONTRACT CAN NOT BE EXECUTED. HE SUBMI TTED THAT ID. COUNSEL FOR ASSESSEE HAS ACCEPTED THAT CERTAIN DOCUMENTAT ION LIKE APPROVAL OF MILE STONE PAYMENTS ETC. WERE EXCHANGED T HROUGH PROJECT OFFICE AND, ACCORDING TO HIM, SOME DEGREE OF COORDI NATION WAS AFFECTED THROUGH PROJECT OFFICE. HE SUBMITTED THAT A S PER THE REQUIREMENT OF ARTICLE 5(1) OF DT AA THE BUSINESS SHOUL D BE WHOLLY OR PARTLY CARRIED ON THROUGH FIXED PLACE SO AS TO MAKE I T A PE. HE SUBMITTED THAT IN VIEW OF ACCEPTANCE BY THE LD. AR T HAT SOME CO- ORDINATING ACTIVITIES WERE CARRIED OUT THROUGH PROJE CT OFFICE, IT AMOUNTS TO CARRYING ON OF ASSESSEE' BUSINESS THROUGH PROJECT OFFIC E THOUGH THOSE MAY OR MAY NOT BE SIGNIFICANT ENOUGH FROM THE P OINT OF VIEW OF ATTRIBUTION OF INCOME. HE SUBMITTED THAT PROJECT OFF ICE CANNOT BE COMPARED WITH LIAISON OFFICE AND SUCH ARGUMENT OF LD. AR IS MISPLACED BECAUSE UNDER RULES, LO IS INVARIABLY PERMITTED TO BE OPENED FOR ONLY FOR LIAISON PURPOSE AND NO COMMERCIAL ACTIVITY IS PERM ITTED THROUGH IT, WHEREAS THE PROJECT OFFICE IS PERMITTED TO BE OPENED FOR EXECUTION OF A ITA NO.5237/DEL/2010 36 PROJECT. THUS, HE SUBMITTED THAT THESE ARE TWO SPECIES O F OFFICES WHICH ARE ABSOLUTELY UNLIKE AND IF IT IS A PROJECT OFFICE A ND PROJECT HAS BEEN CARRIED ON THROUGH THAT OFFICE, THEN, THE ONUS IS NOT ON THE ASSESSING OFFICER TO PROVE THAT THE PROJECT IS EXECUTED THROUG H IT. 46. COMING TO ANOTHER ARGUMENT OF LD. AR REGARDING INSTALLATION PE UNDER ARTICLE 5 (3) AND HIS RELIANCE UPON THE DECISIO N OF HONBLE SUPREME COURT IN THE CASE OF HYUNDAI HEAVY INDUSTRIES LTD. (SUPRA), LD. DR SUBMITTED THAT SUCH CONTENTION OF ASSESSEES COUNSEL IS AGAINST THE PRINCIPLES CONTAINED IN ARTICLE 5 OF DTAA WHICH IS REGARDING PERMANENT ESTABLISHMENT. HE SUBMITTED THAT ACCORDING TO SCHEME OF ARTICLE 5, FIXED PLACE PE UNDER ARTICLE 5(1) IS THE PRIMARY FORM OF PERMANENT ESTABLISHMENT WHICH COMES INTO EXISTENCE IF T WO CONDITIONS ARE FULFILLED. SUCH FIXED PLACE PE IS BASED ON 'PERMA NENCE TEST' AND IT IS IRRESPECTIVE OF KIND OF BUSINESS OF THE ASSESSEE. HE SUBMITT ED THAT THERE CAN BE CERTAIN KIND OF BUSINESS WHICH DO NOT REQ UIRE A FIXED PLACE FOR ITS EXECUTION AND, THUS, THE ASSESSEE MAY CLAIM THAT AS THERE IS NO FIXED PLACE PE, ITS INCOME CANNOT BE TAXED. TO TAKE CARE OF SUCH SITUATIONS, ARTICLE 5(3) RELAXES PERMANENCE TEST FOR BU ILDING, CONSTRUCTION OR INSTALLATION PROJECTS AND HAS LAID DOWN 'DURATION TEST' FOR PE TO EXIST. HE SUBMITTED THAT ARTICLE 5(3) DOES NOT PRECLUDE ARTICLE 5(1) AND HENCE IT CANNOT BE SAID THAT THERE CANNOT B E A FIXED PLACE PE IN CASE OF KINDS OF BUSINESSES MENTIONED IN ART 5(3). HE SUBMITTED THAT IT WILL BE PERTINENT THAT ONLY INCOME ATTRIBUTABLE TO ACTIVITIES DONE THROUGH SUCH FIXED PLACE PE CAN BE BROUGHT TO TAX AN D SUCH VIEW HAS BEEN CLEARLY EXPRESSED IN OECD COMMENTARY IN PARAGRAP H 3 OF ARTICLE 5 AND THERE IS NO QUESTION OF ART 5(3) BEING OVER RID DEN BY ARTICLE 5( 1). 47. HE SUBMITTED THAT APPLICATION OF THE DECISION IN THE CASE OF HYUNDAI HEAVY INDUSTRIES LTD. (SUPRA), TO THE FACTS OF THE PRESENT CASE IS MISPLACED BECAUSE IN THAT DECISION NOWHERE IT HAS BEE N LAID DOWN BY HON'BLE SUPREME COURT THAT IN A CONTRACT INVOLVING DESIGNING, ITA NO.5237/DEL/2010 37 FABRICATION AND INSTALLATION, THERE CAN ONLY BE INSTA LLATION PE AND NO FIXED PLACE PE. HE SUBMITTED THAT THE FACTS IN THE C ASE AS NOTICED BY HONBLE SUPREME COURT WERE THAT THE SAID CONCERN HAD ENTERED INTO A CONTRACT WITH ONGC FOR DESIGNING, FABRICATION, HOOK- UP AND COMMISSIONING OF A PLATFORM. THE AGREEMENT WAS IN TWO PARTS, ONE FOR FABRICATION OF STRUCTURE IN KOREA AND OTHER FOR ITS I NSTALLATION AND COMMISSIONING. AFTER FABRICATION, PLATFORM WAS HANDED OVER TO ONGC IN KOREA. IN THESE CIRCUMSTANCES, IT WAS HELD BY HON'BLE S UPREME COURT THAT THE ACTIVITIES UPTO FABRICATION OF PLATFORM HAV E OCCURRED OUTSIDE INDIA AND HENCE THESE CANNOT BE ATTRIBUTED TO INSTALL ATION PE WHICH CAME INTO EXISTENCE AFTER FABRICATION WAS COMPLETED. HE SUBMITTED THAT IN THAT CASE, THE DEPARTMENT DID NOT ALLEGE THA T THERE WAS A PE BEFORE HANDING OVER OF PLATFORM IN KOREA AND IN SUCH A SITUATION, HON'BLE SUPREME COURT HAS HELD THAT SINCE INSTALLATION PE CAME INTO EXISTENCE AFTER FABRICATED PLATFORM WAS HANDED OVER T O ONGC IN KOREA, ACTIVITIES PRIOR TO HANDING OVER OF PLATFORM CANNOT BE ATTRIBUTED TO SUCH INSTALLATION PE. AFTER INSTALLATION PE CAME INTO EXIST ENCE, INCOME HAS BEEN HELD TO BE ATTRIBUTABLE TO IT. HE SUBMITTED TH AT HONBLE SUPREME COURT HAS NOWHERE HELD THAT THERE CANNOT EXIST ANY PE BEFORE START OF INSTALLATION STAGE. THE CRUCIAL FACT IN THAT CASE WAS T HAT THE DEPARTMENT DID NOT ALLEGE THAT THERE WAS ANY PE BEFORE START OF INSTALLATION STAGE. HE DREW OUR ATTENTION TO THE FOLLOWING PARA FROM TH E SAID DECISION:- 'THERE IS ONE MORE ASPECT TO BE DISCUSSED. THE ATTRACTIO N RULE IMPLIES THAT WHEN AN ENTERPRISE SETS UP A PERMANENT ESTABLISHMENT IN ANOTHER COUNTRY, IT BRINGS ITSELF WITHIN FISCAL JURISDICTION OF THAT OTHER COUNTRY TO SUCH A DEGREE THAT SU CH OTHER COUNTRY CAN TAX ALL PROFITS THAT GE DERIVES FROM SO URCE COUNTRY WHETHER THROUGH PERMANENT ESTABLISHMENT OR NOT. IT IS ACT OF SETTING UP OF PERMANENT ESTABLISHMENT WHICH TRIGGER S THE TAXABILITY OF TRANSACTIONS IN SOURCE STATE. THEREFORE, UN LESS PERMANENT ESTABLISHMENT IS SET UP, THE QUESTION OF TAXABIL ITY DOES NOT ARISE - WHETHER TRANSACTIONS ARE DIRECT OR THROU GH PERMANENT ESTABLISHMENT. IN CASE OF TURNKEY PROJECT, PER MANENT ESTABLISHMENT IS SET UP AT INSTALLATION STAGE WHILE ENTIRE TURNKEY PROJECT INCLUDING SALE OF EQUIPMENT IS FINALIZED BEFO RE INSTALLATION STAGE. THE SETTING UP OF PERMANENT ESTABLISHM ENT IN SUCH A CASE IS A STAGE SUBSEQUENT TO CONCLUSION OF CON TRACT. IT IS ITA NO.5237/DEL/2010 38 AS RESULT OF SALE OF EQUIPMENT THAT THE INSTALLATION PERMA NENT ESTABLISHMENT COMES INTO EXISTENCE. HOWEVER, THIS IS NOT AN ABSOLUTE RULE. IN PRESENT CASE, THERE WAS NO ALLEGATION MADE BY DEPARTMENT THAT PERMANENT ESTABLISHMENT CAME INTO EXISTENCE EVEN BEFORE SALE TOOK PLACE OUTSIDE INDIA ' (EMPHASIS UPPLIED) 48. HE SUBMITTED THAT THE FACT AS FOUND BY THE HON'BL E SUPREME COURT WAS THAT THE CONTRACT OF THE ASSESSEE IN THAT CASE WITH ONGC IS DIVISIBLE INTO TWO PARTS, ONE IS FABRICATION AND SALE O F PLATFORM AND THE OTHER IS ITS INSTALLATION. THE SALE OF FABRICATED PLATF ORM OCCURRED IN KOREA. IN VIEW OF THESE FACTS, HON'BLE SUPREME COURT HAS HELD THAT THE CONTRACT OF SALE OF EQUIPMENT IS FINALIZED BEFORE INST ALLATION STAGE AND UPTO INSTALLATION STAGE THERE WAS NO PE IN EXISTENCE AN D THAT EXISTENCE OF PE WAS NOT EVEN ALLEGED BY THE DEPARTMENT. THEREF ORE, THE ACTIVITIES UPTO THE SALE OF PLATFORM IN KOREA COULD NOT BE ATTR IBUTED TO INSTALLATION PE WHICH CAME INTO EXISTENCE LATER ON AFTER THE INSTA LLATION ACTUALLY STARTED. 49. HE SUBMITTED THAT ACCORDING TO THE FACTS OF THE P RESENT CASE, DURING THE PERIOD UNDER CONSIDERATION, FABRICATION ST AGE HAS STARTED AND INSTALLATION STARTED ONLY DURING NEXT YEAR AS IS EV IDENT FROM CHART GIVEN BY THE ASSESSING OFFICER AT PAGE 28 OF HIS ORDER. HE SUBMITTED THAT THUS, THERE IS NO QUESTION OF INSTALLATION PE COMI NG INTO EXISTENCE DURING THE PERIOD UNDER CONSIDERATION. HE SUBMITTED T HAT ADMITTEDLY, THERE WERE NO INSTALLATION ACTIVITIES DURING THE YEAR UNDER CONSIDERATION, THEREFORE THE CONTENTION OF THE ASSESSEE THAT ONLY INSTALLATION PE CAN EXIST IN SUCH CASES AND NO OTHER KIN D OF PE CAN EXIST SHOULD NOT BE ACCEPTED. HE SUBMITTED THAT THE PROJEC T OFFICE IS A FIXED PLACE OF BUSINESS AND UNLIKE IN THE CASE OF HYUNDAI HEA VY INDUSTRIES LTD. (SUPRA), IN THE CASE OF THE ASSESSEE, THERE IS NO SALE OF FABRICATED PLATFORM OUTSIDE INDIA, AND, RATHER IN THE PRESENT CA SE, THE SALE OCCURRED IN INDIA ONLY AFTER SUCCESSFUL INSTALLATION OF PLATFORM AS IS EVIDENT FROM CLAUSE 7.1.1 OF CONTRACT WHICH STIPULATE S THAT THE ITA NO.5237/DEL/2010 39 OWNERSHIP OF MATERIAL SHALL BE TRANSFERRED TO ONGC UPO N THE DATE OF ISSUANCE OF CERTIFICATE AND IT IS AT THE COMPLETION O R COMPLETION AND ACCEPTANCE OF WORKS. THEREFORE, HE CONTENDED THAT UN LIKE THE CASE OF HYUNDAI HEAVY INDUSTRIES LTD. (SUPRA) THE CONTRACT IS N OT DIVISIBLE IN ASSESSEE'S CASE AND IT HAS BEEN DEMONSTRATED IN EARLIER ARG UMENTS THAT THE FIXED PLACE PE OF PROJECT OFFICE IS IN EXIST ENCE SINCE START OF THE CONTRACT AND IT HAS BEEN USED BY THE ASSESSEE FOR CO-ORDI NATION AND EXECUTION OF CONTRACT WITH ONGC. THUS, HE SUBMITTED T HAT THERE IS VITAL DIFFERENCE IN THE FACTS OF THE CASE OF THE HYUNDAI HE AVY INDUSTRIES LTD. (SUPRA), WHEN THEY ARE COMPARED TO THE FACTS OF THE C ASE OF THE ASSESSEE. 50. IT IS FURTHER CONTENDED BY LD. DR THAT SO AS IT RE LATES TO RELIANCE BY THE LD. AR ON THE DECISION OF THE TRIBUNAL IN THE CASE OF DCIT V. HYUNDAI HEAVY INDUSTRIES CO. LTD. [2009] 31 SOT 482 ( DELHI) A COPY OF WHICH IS PLACED AT PAGES 72 TO 78 OF PAPER BOOK WHER EIN IN PARA 11 ITAT HAS HELD THAT PROVISIONS OF ARTICLE 5(3) ARE SPECI FIC AND THEREFORE THEY WILL OVER-RIDE THE PROVISIONS OF ARTICLE 5(1) AN D 5(2). HE REFERRED TO THE OBSERVATIONS OF THE TRIBUNAL IN PARA 11 ON PAG E 492 WHERE IT WAS OBSERVED BY THE TRIBUNAL THAT THE ASSESSING OFFICER W AS NOT ABLE TO SHOW THAT PE OF THE ASSESSEE EXISTED IN INDIA BEFORE FABR ICATION AND, IN THIS MANNER, THE ITAT, FOLLOWING THE DECISION OF HON BLE SUPREME COURT HAS HELD THAT PROFITS BEFORE FABRICATION STAGE COULD NOT BE TAXED BECAUSE THERE EXIST NO PE BEFORE INSTALLATION STAGE. H E CONTENDED THAT HON'BLE SUPREME COURT IN THE CASE OF HYUNDAI HEAVY I NDUSTRIES LTD. (SUPRA) HAS NO WHERE HELD THAT ARTICLE 5(3) TAKES PREC EDENCE OVER ARTICLE 5(1) AND 5(2) AND SUCH OBSERVATIONS OF ITAT IS NOT EVEN SUPPORTED BY OECD COMMENTARY IN PARAGRAPH 3 OF ARTIC LE 5. HE ALSO CONTENDED THAT IN THE LAST LINE OF PARA 11 ON PAGE 4 93 IT HAS BEEN OBSERVED BY THE ITAT THAT PROJECT OFFICE IN THAT CASE DID NOT CARRY OUT ANY COMMERCIAL ACTIVITY AS THESE WERE PROHIBITED BY T HE RBI. SO, LD. ITA NO.5237/DEL/2010 40 DR CONTENDED THAT THE FACTS OF THE CASE OF THE ASSESSEE A RE VITALLY DIFFERENT FROM THE CASE OF HYUNDAI HEAVY INDUSTRIES LT D. (SUPRA). IN THE PRESENT CASE, THERE IS A FIXED PLACE PE DURING FABRICA TION STAGE AS HAS BEEN ARGUED EARLIER AND RBI HAD PLACED NO RESTRICTIO N ON THE PROJECT OFFICE FROM DOING ANY COMMERCIAL ACTIVITY. HE SUBMIT TED THAT IN VIEW OF HIS ARGUMENTS IT SHOULD BE HELD THAT PE OF THE ASSESSEE EX ISTS UNDER ARTICLE 5(1) IN THE FORM OF PROJECT OFFICE IN MUMBA I AND SO AS IT RELATES TO ATTRIBUTION OF INCOME TO SUCH PE, THE MATTER MAY BE DECIDED ACCORDINGLY AFTER HEARING BOTH THE PARTIES. 51. IN THE REJOINDER, IT WAS SUBMITTED BY LD. AR THAT MERE FILING OF THE RETURN DOES NOT LEAD TO THE CONCLUSION THAT THE APPEL LANT HAD A PE INDIA. THE RETURN OF INCOME WAS FILED ON THE PRESUMPT ION THAT THE CONTRACT WAS DIVISIBLE CONTRACT. WHILE LOSS IN RESPECT O F INSIDE INDIA REVENUES WAS DISCLOSED, OUTSIDE INDIA REVENUES WERE NOT O FFERED FOR TAXATION ON THE GROUND THAT PE IN INDIA DID NOT COM E INTO EXISTENCE DURING THE RELEVANT YEAR. HE SUBMITTED THAT WITHOUT PREJUDICE TO THE ABOVE, THERE IS NO ESTOPPEL IN LAW IN RESILING FROM A POSITION INCORRECTLY TAKEN IN THE RETURN OF INCOME AND CONSIDERED IN THAT LIGHT, EVEN IF THE ASSESSEE HAD FILED A TAX RETURN ON THE PRESUMPTION THAT THERE WAS PE IN INDIA, SUCH POSITION MISTAKENLY TAKEN COULD BE RESIL ED IN THE PROCEEDINGS BEFORE THE ASSESSING AUTHORITY OR THE APPELL ATE AUTHORITIES AND, IN THIS REGARD, HE PLACED RELIANCE ON THE DECISI ON IN THE CASE OF CIT V. BHARAT GENERAL REINSURANCE CO. LTD.: 81 ITR 3 03 (DEL) AND ALSO THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF INDO JAVA & CO. V. LAC, 30 ITD 161 (SB)(DEL). HE SUBMITT ED THAT THE QUESTION WHETHER THE ASSESSEE HAS A PE IN INDIA OR NOT HA S TO BE DETERMINED WITH REFERENCE TO THE FACT OF THE CASE AN D THE POSITION IN LAW AND NOT ON THE BASIS OF FILING OF RETURN OF INCOM E BY THE ASSESSEE, MORE SO WHERE THE ASSESSEE HAS RESILED FROM THE POSITION TA KEN IN THE RETURN. ITA NO.5237/DEL/2010 41 52. HE FURTHER SUBMITTED THAT THE BOARD RESOLUTION, I N FACT, ONLY AUTHORIZED THE PROJECT OFFICE TO COORDINATE AND EXE CUTE DELIVERY DOCUMENTS. THE SAID PROJECT OFFICE WAS, THEREFORE, NOT EMPOWERED TO DO ANYTHING BEYOND ACTING AS AN INTERFACE OR A CHANN EL OF COMMUNICATION BETWEEN THE ASSESSEE AND THE ONGC. HE SUB MITTED THAT THE WORD 'EXECUTE' IN THE FIRST PART OF THE RESO LUTION HAVE TO BE READ NOT DE HORS BUT IN CONJUNCTION WITH THE LATER P ART OF THE SAID RESOLUTION, WHICH EXPLAINS THAT THE TERM EXECUTION HAS BEEN USED ONLY WITH REFERENCE TO DELIVERY OF DOCUMENTS. HE SUBMITT ED THAT IN ANY CASE, THE PERSONNEL DEPUTED AT THE PROJECT OFFICE WER E NOT TECHNICAL PERSONS AND WERE NOT CAPABLE OF CARRYING OUT ANY WORK FOR WHICH THE ASSESSEE WAS ENGAGED BY ONGC UNDER THE CONTRACT. HE SUBMI TTED THAT NO EVIDENCE HAS BEEN PLACED BY THE ASSESSING OFFICER OR BY THE LD. CIT (DR) TO DEMONSTRATE THAT THE PROJECT OFFICE WAS INVOL VED IN EXECUTING THE VED PROJECT. THE NATURE AND QUANTUM OF EXPENSES I NCURRED BY THE PROJECT OFFICE, ON THE OTHER HAND, AMPLY DEMONSTRATE THAT NO WORK IN RELATION TO THE PROJECT WAS EXECUTED BY THE PROJECT OFFICE AND IT WAS ONLY ACTING AS A COMMUNICATION CHANNEL BETWEEN THE A SSESSEE AND THE ONGC. 53. WITH REFERENCE TO THE CONTENTION OF LD. DR THAT THE BUSINESS OF THE ASSESSEE WAS CARRIED ON THROUGH PROJECT OFFICE FOR W HICH THE RELIANCE WAS PLACED BY LD. DR ON VARIOUS CLAUSES OF THE CONTRACT AGREEMENT, IT WAS SUBMITTED BY LD. AR THAT SUCH ARGUME NT OF LD. DR IS ERRONEOUS INASMUCH AS THOSE CLAUSES ONLY AUTHORIZED THE A SSESSEE THROUGH ITS REPRESENTATIVES TO CO-ORDINATE WITH ONGC R EGARDING THE WORK TO BE PERFORMED BY THE ASSESSEE UNDER THE AGREEMEN T. THE REPRESENTATIVE OF THE ASSESSEE MEANS EMPLOYEES/AGENTS OF TH E ASSESSEE DULY AUTHORIZED TO DEAL WITH ONGC IN RELATION TO THE CONTRACT AND THIS, DOES NOT, HOWEVER, MEAN THAT THE PROJECT OF FICE WAS INVOLVED IN THE EXECUTION OF THE INSTALLATION PROJECT. THERE WAS NOTHING IN THE ITA NO.5237/DEL/2010 42 AGREEMENT TO SUGGEST OR ANY OTHER POSITIVE EVIDENCE TO PROVE THAT THE WORK HAD, INDEED, BEEN CARRIED OUT THROUGH THE PROJ ECT OFFICE OF THE ASSESSEE IN INDIA. 54. HE SUBMITTED THAT ACCORDING TO THE FACTS OF THE C ASE THE ASSESSEE HAS CARRIED OUT LIMITED ACTIVITIES IN INDIA DURI NG THE RELEVANT PREVIOUS YEAR AND THAT, IN ANY CASE, THE PROJECT ONLY CARRIED OUT PREPARATORY AND AUXILIARY ACTIVITIES, AS IT IS EVIDENT FROM THE AUDITED STATEMENT OF ACCOUNTS AND THE MILESTONE PAYMENT CERTIF ICATES CERTIFIED BY ONGC. HE SUBMITTED THAT THE BURDEN TO PROVE OTHER WISE WAS ON THE REVENUE TO BRING SOME EVIDENCE ON RECORD TO ESTABLISH THAT SOME ACTIVITY HAD, INDEED, BEEN CARRIED ON THROUGH THE P ROJECT OFFICE BEFORE CONCLUDING THAT THE PROJECT OFFICE OF THE ASSESSEE CONST ITUTED PE IN INDIA. HE REFERRED TO THE DECISION OF THE TRIBUNAL IN THE CASE OF R&B FALCON OFFSHORE LTD. DATED 28.02.2011 IN WHICH THE T RIBUNAL DID NOT ENTERTAIN THE ARGUMENT SUBMITTED BY THE REVENUE TO SI MILAR EFFECT ON THE GROUND THAT THERE WAS ABSENCE OF ANY EVIDENCE BEI NG BROUGHT ON RECORD BY THE REVENUE. HE SUBMITTED THAT THE ASSESSEE C OULD NOT BE ASKED TO PROVE THAT THE PROJECT OFFICE DID NOT CARRY OUT ANY PROFIT GENERATING ACTIVITY AS THAT WOULD AMOUNT TO ASKING TH E ASSESSEE TO PROVE THE NEGATIVE. HE SUBMITTED THAT PERUSAL OF AUD ITED ACCOUNTS FILED BY THE ASSESSEE ALONG WITH THE MILESTONE CERTIFICA TES ISSUED BY ONGC WOULD LEAD TO AN INESCAPABLE CONCLUSION THAT DUR ING THE RELEVANT PREVIOUS YEAR NO SUBSTANTIAL ACTIVITY WAS CARRIED OUT I N INDIA. THE EXPENDITURE MAINLY ARE INCURRED IN RESPECT OF INSURAN CE PREMIUM. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE PROJECT OFF ICE WAS INVOLVED IN THE EXECUTION OF THE CONTRACT, SINCE THE DURATION THRESHOLD OF NINE MONTHS IN ARTICLE 5(3) OF THE TREATY IN RELATION TO THE INSTALLATION PROJECT WAS NOT CROSSED DURING THE RELEVANT PREVIOUS YEAR, AS TH E INSTALLATION ACTIVITY BEGAN ONLY IN THE SUBSEQUENT FINANCIAL YEAR, THE EXISTENCE OF THE PROJECT OFFICE WOULD NOT RESULT IN A PE OF THE A SSESSEE IN INDIA IN ITA NO.5237/DEL/2010 43 TERMS OF ARTICLE 5(1) OF THE DTAA, AS EXPLAINED IN TH E OECD COMMENTARY AND AS HELD BY THE DELHI TRIBUNAL IN THE CASE OF HYUNDAI HEAVY INDUSTRIES LTD. (SUPRA). HE SUBMITTED THAT THE I NTERPRETATION SOUGHT TO BE CONVEYED BY LD. DR THAT ARTICLE 5 (1) I S NOT OVERRIDDEN BY ARTICLE 5(3) EVEN IN THE CASE OF AN INSTALLATION PROJ ECT WOULD RENDER THE DURATION TEST UNDER ARTICLE 5(3) OTIOSE AND, THEREFOR E, SUCH AN ARGUMENT OF LEARNED DR SHOULD NOT BE ACCEPTED. 55. REFERRING TO THE DECISION OF HONBLE SUPREME COU RT IN THE CASE OF HYUNDAI HEAVY INDUSTRIES LTD. (SUPRA) LD. AR SUBMITTED THAT NORMALLY IT IS A RESULT OF SALE OF EQUIPMENT THAT THE INSTALLATION PE COMES INTO EXISTENCE BUT THIS IS NOT AN ABSOLUTE RULE. HE SUBMITTE D IT HAS NOT BEEN APPRECIATED BY LD. DR THAT THE AFORESAID OBSERVA TIONS OF THE HONBLE SUPREME COURT WERE NOT IN THE CONTEXT OF TH E ISSUE OF FIXED PLACE PE VIS-A-VIS INSTALLATION PE. IT WAS OBSERVED BY THE COURT THAT IN A TURNKEY PROJECT, THE PE IS SET UP AT THE INSTALLATIO N STAGE WHILE THE ENTIRE TURNKEY PROJECT, INCLUDING THE SALE OF EQUIPM ENT IS FINALIZED BEFORE THE INSTALLATION STAGE. HOWEVER, THE AFORESAID MAY NOT BE THE CASE IF THE DEPARTMENT DEMONSTRATES THAT PE COMES INTO EXISTENCE EVEN BEFORE THE SALE TOOK PLACE OUTSIDE INDIA, E.G., IN A CONTRACT FOR ONLY SUPERVISION OF INSTALLATION/CONSTRUCTION ACTIVITY, THE INSTALLATION PE OF A NON-RESIDENT MAY COME INTO EXISTENCE AS SOON AS THE SUPERVISORY ACTIVITIES ARE UNDERTAKEN BY THE NON-RESIDENT ASSESSEE AN D THE EXISTENCE OF SUCH A PE WOULD BE INDEPENDENT OF THE SUP PLY OF MATERIAL. HE SUBMITTED THAT IN THE PRESENT CASE THE PROJECT OFFI CE WAS SET UP AFTER THE CONTRACT HAD BEEN AWARDED TO THE ASSESSEE BY ONGC AND HAD NO ROLE TO PLAY EITHER IN PROCUREMENT OF THE CONTRA CT OR THE INSTALLATION ACTIVITY TO BE CARRIED ON BY THE APPELLANT, WHICH ST ARTED ONLY IN NOVEMBER, 2007. HE SUBMITTED THAT THE AFORESAID DECI SION OF THE SUPREME COURT SUPPORTS THE CASE OF THE ASSESSEE NOTWITHSTAN DING THE EXISTENCE OF A PROJECT OFFICE IN INDIA, WHICH WAS HEL D TO BE CONSTITUTING ITA NO.5237/DEL/2010 44 PE OF HYUNDAI BY THE LOWER AUTHORITIES, IT WAS HELD B Y THE APEX COURT THAT THE PE OF HYUNDAI CAME INTO EXISTENCE ONLY AFTE R THE FABRICATED PLATFORMS WERE DELIVERED TO THE AGENTS OF ONGC IN KOR EA AND HE DREW OUR ATTENTION TOWARDS THE FOLLOWING OBSERVATIONS OF TH E HONBLE SUPREME COURT IN THE SAID DECISION:- 'THE INSTALLATION PE CAME INTO EXISTENCE ONLY ON CONCLU SION OF THE TRANSACTION GIVING RISE TO THE SUPPLIES OF THE FABRIC ATED PLATFORMS. THE INSTALLATION PE EMERGED ONLY AFTER THE CO NTRACT WITH ONGC STOOD CONCLUDED. IT EMERGED ONLY AFTER THE FAB RICATED PLATFORM WAS DELIVERED IN KOREA TO THE AGENTS OF ONGC. THEREFORE, THE PROFITS ON SUCH SUPPLIES OF FABRICATED PLATFORMS CANNOT BE SAID TO BE ATTRIBUTABLE TO THE PE. THERE IS ONE MORE REASON FOR COMING TO THE AFORESTATED CONCLUSION. IN TERM S OF PARA (1) OF ARTICLE 7, THE PROFITS TO BE TAXED IN THE SOU RCE COUNTRY WERE NOT THE REAL PROFITS BUT HYPOTHETICAL PROFITS WHICH TH E PE WOULD HAVE EARNED IF IT WAS WHOLLY INDEPENDENT OF THE GE. THEREFORE, EVEN IF WE ASSUME THAT THE SUPPLIES WERE NE CESSARY FOR THE PURPOSES OF INSTALLATION (ACTIVITY OF THE PE IN I NDIA) AND EVEN IF WE ASSUME THAT THE SUPPLIES WERE AN INTEGRAL PA RT, STILL NO PART OF PROFITS ON SUCH SUPPLIES CAN BE ATTRIBUTED TO THE INDEPENDENT PE UNLESS IT IS ESTABLISHED BY THE DEPARTMEN T THAT THE SUPPLIES WERE NOT AT ARM'S LENGTH PRICE. NO SUCH TAX ABILITY CAN ARISE IN THE PRESENT CASE AS THE SALES WERE DIRECTL Y BILLED TO THE INDIAN CUSTOMER (ONGC). NO SUCH TAXABILITY CAN ALSO ARISE IN THE PRESENT CASE AS THERE WAS NO ALLEGATION MADE BY THE DEPARTMENT THAT THE PRICE AT WHICH BILLING WAS DONE FOR TH E SUPPLIES INCLUDED ANY ELEMENT FOR SERVICES RENDERED BY THE PE. IN THE LIGHT OF OUR ABOVE DISCUSSION, WE ARE OF THE VI EW THAT THE PROFITS THAT ACCRUED TO THE KOREAN GE FOR THE KOREAN OPER ATIONS WERE NOT TAXABLE IN INDIA.' [EMPHAS IS SUPPLIED] 56. THUS, IT WAS SUBMITTED BY THE LD. AR THAT THE PROJ ECT OFFICE OF THE ASSESSEE DID NOT CONSTITUTE PE OF ASSESSEE IN INDIA AND, THE REFORE, THE ASSESSING OFFICER HAS ERRED IN BRINGING TO TAX REVENUES R ELATING TO OUTSIDE INDIA ACTIVITY CARRIED OUT BY THE ASSESSEE. 57. IN THIS MANNER, BOTH THE PARTIES CONCLUDED THEIR ARGUMENTS. 58. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS I N THE LIGHT OF THE MATERIAL PLACED BEFORE US. WE HAVE CAREFULLY GO NE THROUGH THE ITA NO.5237/DEL/2010 45 CONTRACT ENTERED INTO BETWEEN THE ASSESSEE AND L & T ON THE ONE PART AND ONGC ON THE OTHER PART IN PURSUANCE OF WHICH THE REVENUE HAS BEEN RECEIVED BY THE ASSESSEE. WE HAVE ALSO CAREFULLY G ONE THROUGH THE PAPERS/DOCUMENTS REFERRED TO BY BOTH THE PARTIES D URING THE COURSE OF HEARING AND REFERRED BY THEM IN THE SYNOPSIS FILED FOR THEIR ARGUMENTS. IT IS THE MAIN CASE OF LEARNED AR THAT THO UGH THE EXISTENCE OF PE IN INDIA IS SINE QUA NON TO TAX THE ASSESSEE IN IND IA, BUT THE ASSESSEE DOES NOT HAVE A PE IN INDIA FOR THE YEAR UNDER CONSIDERATION AS NO CORE BUSINESS ACTIVITY HAS BEEN CARRIED OUT THROUG H FIXED PLACE (MUMBAI PROJECT OFFICE); THE ASSESSEE IS GOVERNED BY THE PROVISIONS OF ARTICLE 5 (3) WHICH REGULATES INSTALLATION PE, THEREF ORE, THE PROVISIONS OF ARTICLE 5 (3) BEING SPECIFIC PROVISION WILL HAVE OVER RIDING EFFECT OVER THE GENERAL PROVISIONS CONTAINED IN ARTICLE 5 (1) AND 5 ( 2); THE ACTIVITY, IF ANY, CARRIED ON BY MUMBAI PROJECT OFFICE IS IN THE N ATURE OF PREPARATORY OR AUXILIARY IN NATURE WHICH FALLS UNDER THE EXCEPTI ON LAID DOWN IN ARTICLE 5 (4) OF THE DTAA; ACCORDING TO THE ACCOUNT S MAINTAINED BY THE ASSESSEE, MUMBAI PROJECT OFFICE HAS NOT INCURRED ANY EXP ENDITURE RELATING TO EXECUTION OF CONTRACT AND DETAILS OF EXP ENDITURE THEREIN WILL SHOW THAT IT HAD NO ROLE IN CARRYING ON THE CORE BUSI NESS ACTIVITIES ON THE BASIS OF WHICH THE ASSESSEE CAN BE TAXED IN INDIA ON THE ACTIVITIES CARRIED ON BY IT OUTSIDE INDIA; THE CONTRACT OF THE ASSESSEE IS DIVISIBLE IN TWO PARTS AND BEFORE FABRICATED PLATFORM WAS DEPOR TED FROM MALAYSIA, WHERE IT HAS BEEN FABRICATED, INSTALLATION P E CANNOT BE SAID TO HAVE COME INTO EXISTENCE, THEREFORE, PRIOR TO THA T POINT OF TIME NO PART OF OUTSIDE INDIA ACTIVITY CAN BE TAXED IN INDIA IN THE ABSENCE OF THE INSTALLATION PE; THE REVENUE RECEIVED BY THE ASSESSEE MA INLY CONSTITUTED INSURANCE COST AND IF THE SAME IS IGNORED, T HEN, NEGLIGIBLE WORK HAS BEEN CARRIED OUT BY THE ASSESSEE WHICH IS LESS THA N 1% OF THE REVENUE RELATABLE TO THE ACTIVITIES TO BE PERFORMED IN INDIA. ITA NO.5237/DEL/2010 46 59. ON THE OTHER HAND, IT IS THE CASE OF THE DEPARTME NT THAT THE PE OF THE ASSESSEE CAME INTO EXISTENCE UPON THE EVENT OF OPENI NG OF MUMBAI PROJECT OFFICE; THE SUBMISSION OF THE RETURN OF INCOME BY THE ASSESSEE ITSELF WILL SHOW THAT THE PE OF THE ASSESSEE HAD EXI STED IN INDIA AS IN THE ABSENCE OF PE NO PART OF INCOME OF TH E ASSESSEE CAN BE TAXED IN INDIA; THE DOCUMENTS IN THE SHAPE OF MINUTES OF BOARD OF DIRECTORS MEETING, THE LETTER ISSUED BY THE RBI ALLOWI NG THE ASSESSEE TO OPEN PROJECT OFFICE IN MUMBAI AND THE CONTENTS OF TH ESE DOCUMENTS PROVE BEYOND DOUBT THAT MUMBAI PROJECT OFFICE WAS OP ENED TO CARRY OUT THE WORK ALLOTTED BY THE ONGC AND ALL THESE DOCU MENTS ARE SUFFICIENT TO COME TO THE CONCLUSION THAT THE PE OF T HE ASSESSEE WAS EXISTING IN INDIA AT ALL POINTS OF TIME; THE ONUS DOES NOT LIE ON ASSESSING OFFICER BUT ON THE ASSESSEE AS IT IS ONLY THE ASSESSEE, WHO I S CLAIMING THAT NO PART OF ITS INCOME IS TAXABLE IN INDIA DESPIT E THE FACT THAT ASSESSEE HAS PE IN INDIA IN THE SHAPE OF MUMBAI PROJECT O FFICE; NO FURTHER PROOF WAS REQUIRED TO BE SUBMITTED BY THE ASSESSI NG OFFICER AS THE ONUS WILL BE ON THE ASSESSEE TO PROVE TO THE CONTRAR Y; VARIOUS CLAUSES OF THE CONTRACT WILL SHOW THAT THE CONTRACT IS INDIVISIBLE AND THE REVENUE RECEIVED BY THE ASSESSEE IN PURSUANCE OF SUCH CON TRACT WAS TAXABLE IN INDIA RIGHT FROM THE BEGINNING TO THE EX TENT PROFIT ATTRIBUTABLE TO SUCH PE; THE DECISION IN THE CASE OF H YUNDAI HEAVY INDUSTRIES LTD. (SUPRA) CANNOT BE APPLIED TO THE CASE O F THE ASSESSEE AS THERE IS MATERIAL DIFFERENCE IN THE FACTS OF THAT CAS E AND THE FACTS OF THE CASE OF THE ASSESSEE; IN THE CASE OF THE ASSESSEE, MUMBAI PRO JECT OFFICE HAVING COME INTO EXISTENCE, THE PE WAS ESTABLISH ED UNDER ARTICLE 5(1), THEREFORE, ONE DOES NOT NEED TO GO TO THE PROV ISIONS OF ARTICLE 5 (3) AS THE CASE OF THE ASSESSEE FALLS UNDER ARTICLE 5 (1) WHICH HAS EQUAL FORCE. THEREFORE, IT IS THE CASE OF THE REVENUE THAT THE ASSESSEE IS LIABLE TO PAY TAX ON THE REVENUE RECEIVED/RECEIVABL E BY IT IN RESPECT OF THE CONTRACT WITH ONGC TO THE EXTENT THE PROFIT IS A TTRIBUTABLE TO PE IN ITA NO.5237/DEL/2010 47 INDIA, IRRESPECTIVE OF THE FACT THAT THOSE ACTIVITIES ARE CARRIED ON BY THE ASSESSEE EITHER IN INDIA OR OUTSIDE INDIA. 60. TO EXAMINE THE CONTENTION OF BOTH THE PARTIES, I T IS NECESSARY TO DWELL UPON THE TERMS OF THE CONTRACT TO FIND OUT WHE THER THE CONTRACT WAS DIVISIBLE ONE SO AS TO SAY THAT ONE PART OF IT WAS RE LATED TO FABRICATION OF PLATFORM AND THE OTHER PART OF IT WA S RELATED TO INSTALLATION OR COMMISSIONING OF THE SAID PLATFORM. SO ME OF THE TERMS OF THE CONTRACT HAVE ALREADY BEEN REFERRED TO AND R EPRODUCED IN THE ABOVE PART OF THIS ORDER. THE NATURE OF WORK GIVEN IN THE RECITAL OF THE AGREEMENT HAS BEEN DESCRIBED IN PARA 3 OF THIS ORDER A ND THE WORK OF THE ASSESSEE START FROM THE SURVEY TO BE DONE WITH REGARD TO THE ACTIVITY OF PRE-ENGINEERING, PRE-CONSTRUCTION/PRE-I NSTALLATION AND POST CONSTRUCTION AND IT INCLUDE DESIGN, ENGINEERING, PROC UREMENT, FABRICATION, ANTI CORROSION AND WEIGHT COATING, LOAD OUT, TIE DOWN/SEA FASTENING, TOW OUT/SAIL OUT, TRANSPORTATION, INSTALLATI ON, MODIFICATIONS AT EXISTING FACILITIES, HOOK UP TESTING, ETC. THOUGH EARL IER THE WORK OF MODIFICATION TO EXISTING FACILITY WAS AGREED TO BE CA RRIED OUT BY L & T IN THE MOU ARRIVED AT BETWEEN THE ASSESSEE AND THE L & T, BUT, LATER ON, BY AMENDMENT IN MOU, MODIFICATION TO EXISTING FACILI TY WAS ASSIGNED TO THE ASSESSEE. 61. THE PRICE WHICH WAS TO BE RECEIVED BY THE ASSESSEE I N RESPECT OF WORK TO BE CARRIED ON BY IT IN PURSUANCE OF THE CONT RACT HAS BEEN STATED IN PARA 7 OF THIS ORDER. THE SCOPE OF THE WORK HAS BEEN DESCRIBED IN PARA 10 OF THIS ORDER AND THE EXISTING FA CILITIES HAVE BEEN DESCRIBED IN PARA 11 OF THIS ORDER. THE EFFECTIVE DA TE OF COMMENCEMENT OF THE CONTACT IS 24 TH JANUARY, 2006 AND THE COMPLETION DATE IS 2 ND APRIL, 2008. THE ASSESSEE WAS UNDER AN OBLIGATION TO SUPPLY TO ONGC WITHIN 21 DAYS OF THE EF FECTIVE DATE OF COMMENCEMENT OF WORK AND PRIOR TO KICK OFF MEETING, WHICHEVER IS ITA NO.5237/DEL/2010 48 EARLIER, AN ORGANIZATION CHART SHOWING THE PROPOSED O RGANIZATION TO BE ESTABLISHED BY THE CONTRACTOR FOR EXECUTION AND WORK INCLUDING THE IDENTITIES AND CURRICULUM VITAE OF THE KEY PERSONNEL TO BE DEPLOYED AND ANY REVISION OR ALTERATION TO SUCH ORGANIZATION CHART WAS ALSO TO BE PROMPTLY INFORMED BY THE ASSESSEE COMPANY. THESE TERMS H AVE BEEN DESCRIBED IN PARA 13 OF THIS ORDER. 62. IN PARA 14 OF THIS ORDER, IT HAS BEEN STATED UNDER CLAUSE 3.1 OF THE CONTRACT THAT THE CONTRACT PRICE IS A FIRM PRICE AND THE CONTRACTOR SHALL BE BOUND TO KEEP THE SAME FIRM AND WITHOUT ESCAL ATION ON ANY GROUND WHATSOEVER UNTIL COMPLETION OF THE ENTIRE WOR K AGAINST THE CONTRACT. 63. IN PARA 15 THE PAYMENT PROCEDURE HAS BEEN DESCRIB ED UNDER CLAUSE 3.2 AND IT HAS CLEARLY BEEN MENTIONED THAT THE PAYMENTS PENDING THE COMPLETION OF WHOLE WORK ARE PROVISIONA L PROGRESSIVE PROVISIONAL PROGRESSIVE PROVISIONAL PROGRESSIVE PROVISIONAL PROGRESSIVE PAYMENTS PAYMENTS PAYMENTS PAYMENTS FOR THE PART OF THE WORK EXECUTED BY THE C ONTRACTOR ON THE BASIS OF COMPLETION AND CERTIFICATE ISSUED BY THE ONGC REPRESENTATIVE IN ACCORDANCE WITH THE MILESTONE PAYMENT FORMULA PRO VIDED IN THE BIDDING DOCUMENT. THE PAYMENT AS PER MILE STONE FORM ULA DOES NOT IN ANY MANNER INDICATIVE OF THE CONSIDERATION OF THE WO RK COMPLETED BY THAT POINT OF TIME SO AS TO MAKE THE SAID PAYMENT RELA TABLE TO THE RESPECTIVE PART OF THE WORK CONTRACT TO SAY THAT THE PAYMENT MADE IS ONLY FOR THAT PART OF WORK. THEREFORE, ON THE BASIS OF PAYMENT SCHEDULE MENTIONED IN MILE STONE FORMULA CANNOT BE INTERPRETE D TO BE PAYMENT MADE BY ONGC TO THE ASSESSEE RELATING TO THE WORK ON CO MPLETION OF WHICH PAYMENT IS RELEASED AS IT HAS BEEN CLEARLY MENTIO NED IN THIS CLAUSE THAT IT IS ONLY IN THE SHAPE OF PROVISIONAL PROG RESSIVE PAYMENT. WHAT IS MATERIAL FOR ONGC IS NOT THAT PART OF THE CON TRACT BUT COMPLETION OF WHOLE OF THE CONTRACT ITSELF. THUS, IT CAN BE CLEARLY SEEN THAT THE AMOUNT TO BE PAID TO THE ASSESSEE IN ACCORDANC E WITH THE ITA NO.5237/DEL/2010 49 MILESTONE PAYMENT FORMULA ARE NOT THE PAYMENT WITH R EGARD TO THE WORK COMPLETED BY THAT TIME, BUT IT IS ONLY A PROVISI ONAL PROGRESSIVE PAYMENT WHICH WAS TO BE MADE TO THE CONTRACTOR. 64. FURTHER ACCORDING TO THE TERMS OF CLAUSE 3.2, NO PAYMENT SHALL BE DUE AND PAYABLE TO THE CONTRACTOR UNTIL THE CONTRAC T IS SIGNED BY THE TWO PARTIES AND THE CONTRACTOR FURNISHES TO THE COMPAN Y A PERFORMANCE GUARANTEE AS PER CLAUSE 3.3 AND CERTIFICA TE OF INSURANCE FOR POLICY/POLICIES SPECIFIC FOR THE PROJECT AS PER RE QUIREMENT OF CLAUSE 7.3 AND A COPY OF PERMISSION FROM RESERVE BANK OF INDI A FOR OPENING PROJECT OFFICE IN INDIA. SUCH STIPULATION IS IN CLAU SE 3.2, THE RELEVANT PORTION OF WHICH IS DESCRIBED IN PARA 15 OF THIS ORDER AND THESE TERMS WILL CLEARLY REVEAL THAT THE NATURE OF THE CONTRACT IS INDIVISIBLE. ANY PAYMENT MADE IN PURSUANCE OF CONTRACT WILL BECOME DU E ONLY ON THE FULFILLMENT OF THE CONDITION OF SUBMISSION OF PERFORMA NCE GUARANTEE, CERTIFICATE OF INSURANCE POLICY/POLICIES FOR THE PROJ ECT AND A COPY OF PERMISSION FROM RESERVE BANK OF INDIA FOR OPENING PROJ ECT OFFICE IN INDIA. THUS, FOR THE CONTRACT IT WAS A CONDITION PRE CEDENT TO OBTAIN PERMISSION FROM THE RESERVE BANK OF INDIA FOR OPENING PROJECT OFFICE IN INDIA. THERE IS NO DISPUTE TO THE EFFECT THAT THE ASSE SSEE HAD OPENED ITS PROJECT OFFICE IN INDIA ON 24 TH MAY, 2006 AND THE SAID FACT HAS BEEN DESCRIBED IN PARA 17 OF THIS ORDER. THE REVENUE WHIC H HAS BEEN RECOGNISED BY THE ASSESSEE IS ALSO DESCRIBED IN PARA 17 OF THIS ORDER WHICH IS RELATING TO HOOK UP AND COMMISSIONING, INSURAN CE AND PRE- ENGINEERING AND SURVEYS. 65. THUS, IT CAN BE SEEN FROM THE ABOVE DISCUSSION THAT THE CONTRACT OBTAINED BY THE ASSESSEE FROM ONGC IS A COMPOSITE CONTRAC T STARTING RIGHT FROM SURVEYS OF PRE-ENGINEERING, PRE-CONSTRUCTIO N/PRE-INSTALLATION, DESIGN ENGINEERING PROCUREMENT ETC. TILL THE STARTUP AND COMMISSIONING OF THE ENTIRE FACILITIES. THE DURATION OF THE CONTRACT AS ITA NO.5237/DEL/2010 50 PER AGREEMENT IS FROM 24.1.2006 TILL 2.4.2008. THE ASSESSEE WAS UNDER OBLIGATION TO SUPPLY TO ONGC WITHIN 21 DAYS OF EFFECTIVE DATE OF COMMENCEMENT OF WORK AND PRIOR TO KICK OF MEETING, WHICHEVER IS EARLIER, AN ORGANIZATION CHART SHOWING THE PROPOSED O RGANIZATION TO BE ESTABLISHED BY THE CONTRACTOR FOR EXECUTION AND WORK INCLUDING THE IDENTITIES AND CURRICULUM VITAE OF THE KEY PERSONAL T O BE DEPLOYED AND ANY REVISION OR ALTERATION TO SUCH ORGANIZATION CHART WAS ALSO TO BE PROMPTLY INFORMED BY THE ASSESSEE COMPANY. AS A CONDITI ON PRECEDENT, THE ASSESSEE COMPANY WAS REQUIRED TO OPEN A P ROJECT OFFICE IN INDIA BEFORE THE COMMENCEMENT OF THE ACTIVITY OF THE CONTRACTOR. IT WILL BE RELEVANT HERE TO DESCRIBE THE CONTENTS OF THE APPLICATION SUBMITTED BY THE ASSESSEE TO RBI FOR OPENING THE PROJECT OFFICE WHICH IS DATED 24.4.2006, A COPY OF WHICH IS ALSO PLACED AT PAGE 316 OF THE PAPER BOOK WHICH READ AS UNDER: - GENERAL MANAGER RESERVE BANK OF INDIA REGIONAL OFFICE APRIL 24, 2006 MUMBAI DEAR SIR, RE: M/S SAMSUNG HEAVY INDUSTRIES CO. LTD. (SHI) RE: M/S SAMSUNG HEAVY INDUSTRIES CO. LTD. (SHI) RE: M/S SAMSUNG HEAVY INDUSTRIES CO. LTD. (SHI) RE: M/S SAMSUNG HEAVY INDUSTRIES CO. LTD. (SHI) APPLICATION FOR REGISTRATION OF PROJECT OFFICE APPLICATION FOR REGISTRATION OF PROJECT OFFICE APPLICATION FOR REGISTRATION OF PROJECT OFFICE APPLICATION FOR REGISTRATION OF PROJECT OFFICE OUR AFORESAID CLIENT (SHI) HAS ENTERED INTO CONTRACT WITH M/S OIL AND NATURAL GAS CORPORATION LTD. (ONGC) VIDE CONTRACT NUMBER MR/OW/MM/VED/03/2005. UNDER THE INSTRUCTIONS OF OUR ABOVE-REFERRED CLIENT, WE HAVE TO ENCLOSE FOLLOWING DOCUMENTS IN CONNECTION WITH REGISTRATION OF PROJECT OFFICE IN IN DIA: 1) LETTER DATED (.) ON THE LETTER HEAD OF THE COMPANY FOR THE DETAILS OF THE PROJECT AS NOTIFICATION FEMA 95/2003-RB DTD. 2 ND JULY, 2003 FOREIGN EXCHANGE MANAGEMENT (ESTABLISHMENT IN INDIA OF BRANCH OR OFFICE OR OTHER PLACE OF BUSINESS) (AMENDMENT) REGULATIONS 2003 ALONG WITH THE COPY OF LETTER FROM CHOHUNG BANK FOR OPENING BANK ACCOUNT. ITA NO.5237/DEL/2010 51 2) COPY OF THE POA IN OUR FAVOUR AND IN FAVOUR OF M/S HEMAND ARORA AND CO., CA. 3) CERTIFIED COPY OF THE POA IN THE NAME OF THE MR. S.S. PARK, WHO HAS SIGNED THE APPLICATION. 4) CERTIFIED COPY OF THE CERTIFICATE OF REGISTRATIO N OF THE COMPANY IN SOUTH KOREA. 5) CERTIFIED COPY OF THE NOTARIZED BOARD RESOLUTION FOR OPENING A PROJECT OFFICE IN INDIA. 6) CERTIFIED COPY OF EXTRACT OF CONTRACT ENTERED INTO BY OUR CLIENT. KINDLY TAKE THE ABOVE DOCUMENTS ON RECORD. PLEASE TAKE ON RECORD OUR CLIENTS PROJECT OFFICE AND REGISTE R THE SAME. IF YOU REQUIRE ANY CLARIFICATION, PLEASE L ET US KNOW. THANKING YOU, 66. IT WILL ALSO BE RELEVANT TO REPRODUCE COPY OF PO WER ATTORNEY GIVEN BY THE ASSESSEE COMPANY TO MR. S.S. PARK THROUGH JING W AN KIM, PRESIDENT AND CEO OF THE ASSESSEE COMPANY, A COPY OF WHI CH IS PLACED AT PAGE 318 OF THE PAPER BOOK. TO WHOM IT MAY CONCERN: I, THE UNDERSIGNED HEREBY DULY CERTIFY THAT MR. SANGSOON PARK, GENERAL MANAGER OF SAMSUNG HEAVY INDUSTRIES CO., LTD., HAS BEEN APPOINTED AS OUR REPRESENTATIVE TO SIGN THE DOCUMENTS FOR OPENING OF A PROJECT OFFICE AND BANK ACCOUNT IN INDIA AND LOOK AFTER THE OPERATIONS OF PROJECT OFFIC E IN RESPECT OF OUR CONTRACT WITH ONGC FOR VASAI EAST DEVELOPMENT PROJECT AT MUMBAI, INDIA. THIS POWER OF ATTORNEY SHALL REMAIN IN FULL FORCE UNTIL OUR FURTHER NOTICE. I CONFER ONTO MR. SANGSOON PARK OF SAMSUNG HEAVY INDUSTRIES CO. LTD., WHOSE SIGNATURE IS DESCRIBED AS SD/- THE POWER TO REPRESENT OUR COMPANY, SAMSUNG HEAVY INDUSTRIES CO. LTD., IN OVERALL DECISIONS OF ACTIVITIES TO BE REQUIRED IN THE INDIA RELATING TO ITA NO.5237/DEL/2010 52 OPENING OF A PROJECT OFFICE AND BANK ACCOUNT FOR PERFORMANCE OF VASAI EAST DEVELOPMENT PROJECT. _______________ JING WAN KIM PRESIDENT & CEO FOR SAMSUNG HEAVY INDUSTRIES CO.LTD. 67. COPY OF RESOLUTION OF BOARD OF DIRECTORS DATED 3. 04.2006 FOR OPENING OF MUMBAI PROJECT OFFICE IS PLACED AT PAGE 3 20 OF THE PAPER BOOK WHICH READ AS UNDER: - TO WHOM IT MAY CONCERNED RES RES RES RESOLUTION OF THE BOARD OF DIRECTORS OLUTION OF THE BOARD OF DIRECTORS OLUTION OF THE BOARD OF DIRECTORS OLUTION OF THE BOARD OF DIRECTORS WE HEREBY CERTIFY THAT THE FOLLOWING RESOLUTION OF T HE BOARD OF DIRECTORS OF SAMSUNG HEAVY INDUSTRIES CO., LTD. (SHI) WAS PASSES AT A TIME OF THE BOARD MEETING HELD ON APRIL 3, 2006 AND HAS BEEN DULY RECORDED IN THE MINUTE BOOK OF THE SAID COMPANY: RESOLVED: SHI A CORPORATION DULY ORGANIZED AND EXISTING UNDER LAWS OF THE REPUBLIC OF ;KOREA, AND WITH ITS PRINCIPAL BUSINESS OFFICE AT 11 TH FLOOR, KIPS BLD., 647-9, YOKSAMDONG, KANGNAM-KU, SEOUL, KOREA, 135-080, THAT THE OPENING MUMBAI PROJECT OFFICE AND BANK ACCOUNT IN INDIA FOR VASAI EAST DEVELOPMENT PROJECT WITH OIL AND NATURAL GAS CORPORATION LIMITED , INDIA (ONGC). RESOLVED FURTHER, THAT MR. SANGSOON PARK IS FULLY AUTHORIZED TO THE OPENING OF PROJECT OFFICE AND BAN K ACCOUNT IN INDIA FOR ONGC PROJECT. IN WITNESS WHEREOF, I HAVE HEREUNDER SET MY HAND ON THIS 3 RD APRIL IN 2006. SAMSUNG HEAVY INDUSTRIES CO. LTD. SAMSUNG HEAVY INDUSTRIES CO. LTD. ITA NO.5237/DEL/2010 53 647-9, YOKSAM-DONG, KANGNAMKU, SEOUL, KOREA, 135-080 68. MINUTES OF THE BOARD OF DIRECTORS MEETING OF THE ASSESSEE COMPANY HELD FOR OPENING OF MUMBAI PROJECT OFFICE I N INDIA IS PLACED AT PAGE 321 WHICH READ AS UNDER: - MINUTES OF BOARD OF DIRECTORS MEETING MINUTES OF BOARD OF DIRECTORS MEETING MINUTES OF BOARD OF DIRECTORS MEETING MINUTES OF BOARD OF DIRECTORS MEETING OF OFOF OF SAMSUNG HEAVY INDUSTRIES CO. LTD. SAMSUNG HEAVY INDUSTRIES CO. LTD. SAMSUNG HEAVY INDUSTRIES CO. LTD. SAMSUNG HEAVY INDUSTRIES CO. LTD. A MEETING OF THE BOARD OF DIRECTORS OF SAMSUNG HEAVY INDUSTRIES CO. LTD. (THE COMPANY) WAS DULY CALLED AND HELD ON THE 3 RD DAY OF APRIL 2006 AT THE OFFICE OF THE COMPANY IN SEOUL THE REPUBLIC OF KORE A, AT WHICH 3 OF 3 DIRECTORS WERE PRESENT AND ACTING THROUGHOUT. JING WAN KIM, PRESIDENT AND CEO OF SAMSUNG HEAVY INDUSTRIES CO. LTD. ANNOUNCED THAT THE NOTICE OF MEETING WAS DULY GIVEN TO ALL DIRECTORS AND A QUORUM WAS PRESENT AND THE MEETING WAS DULY CALLED TO ORDER AND HELD. RESOLVED: 1. THAT THE COMPANY HEREBY OPEN ONE PROJECT OFFICE THAT THE COMPANY HEREBY OPEN ONE PROJECT OFFICE THAT THE COMPANY HEREBY OPEN ONE PROJECT OFFICE THAT THE COMPANY HEREBY OPEN ONE PROJECT OFFICE IN ININ IN MUMBAI, INDIA FOR COORDINATION AND EXECUTION OF MUMBAI, INDIA FOR COORDINATION AND EXECUTION OF MUMBAI, INDIA FOR COORDINATION AND EXECUTION OF MUMBAI, INDIA FOR COORDINATION AND EXECUTION OF VASAI EAST DEVELOPMENT PROJECT FOR OIL AND NATURAL VASAI EAST DEVELOPMENT PROJECT FOR OIL AND NATURAL VASAI EAST DEVELOPMENT PROJECT FOR OIL AND NATURAL VASAI EAST DEVELOPMENT PROJECT FOR OIL AND NATURAL GAS CORPORATION LIMITED (ONGC), INDIA GAS CORPORATION LIMITED (ONGC), INDIA GAS CORPORATION LIMITED (ONGC), INDIA GAS CORPORATION LIMITED (ONGC), INDIA . THAT THE COMPANY HEREBY DOES MAKE, CONSTITUTE AND MR. SANGSOON PARK YARD GENERAL MANAGER OF THE COMPANY, AS THE COMPANYS TRUE AND LAWFUL REPRESENTATIVE WITH FULL POWER AND AUTHORITY FOR THE PURPOSE OF ESTABLISHING A PROJECT OFFICE AND COORDINATING AND EXECUTING DELIVERY DOCUMENTS IN CONNECTION WITH CONSTRUCTION OF OFFSHORE PLATFORM MODIFICATION OF EXISTING FACILITIES FOR ONGC ABOVE. IN WITNESS WHEREOF, THE PRESIDENT AND DIRECTORS PRESENT AT THE MEETING HAVE HEREUNTO AFFIXED THEIR NAMES AND SEALS ON THIS 3 RD DAY OF APRIL 2006. ITA NO.5237/DEL/2010 54 SD/- SAMSUNG HEAVY INDUSTRIES CO., LTD. PRESIDENT AND CEO JING WAN KIM (EMPHASIS OURS) 69. COPY OF APPROVAL GIVEN BY RBI IS PLACED AT PAGE 322 WHICH READ AS UNDER: FEO, MUMBAI CAD/080/04.02.2001/05-06 24 TH MAY, 2006 M/S DAVESH K. SHAH & CO., CHARTERED ACCOUNTANTS, 106, BANAJI HOUSE, 361, DR. D.N. ROAD, FLORA FOUNTAIN, MUMBAI 400 001. DEAR SIRS, REGISTRATION OF PROJECT OFFICE REGISTRATION OF PROJECT OFFICE REGISTRATION OF PROJECT OFFICE REGISTRATION OF PROJECT OFFICE M/S SAMSUNG HEAVY M/S SAMSUNG HEAVY M/S SAMSUNG HEAVY M/S SAMSUNG HEAVY INDUSTRIES CO. LTD. INDUSTRIES CO. LTD. INDUSTRIES CO. LTD. INDUSTRIES CO. LTD. (SHI) (SHI) (SHI) (SHI) PLEASE REFER TO YOUR LETTER DATED 24 TH APRIL, 2006 ON THE CAPTIONED SUBJECT. IN THIS CONNECTION, WE ADVISE HAVI NG NOTED A PROJECT OFFICE IN INDIA IN TERMS OF PREVISION CONTAINED IN AP (DIR SERIES) CIRCULAR NO. 37 DATED 1 5 TH NOVEMBER, 2003. YOURS FAITHFULLY, SD/- (A.D. KALA) P. GENERAL MANAGER 70. IT CAN BE SEEN FROM ALL THE ABOVE DOCUMENTS THAT THE SCOPE OF MUMBAI PROJECT OFFICE HAS NEITHER BEEN RESTRICTED BY THE ASSESSEE COMPANY ITSELF OR IT HAS ALSO NOT BEEN RESTRICTED BY RB I IN ANY TERMS. ITA NO.5237/DEL/2010 55 THIS IS RELEVANT FOR THE REASON THAT IN HYUNDAI HEAVY INDUSTRIES CASE, IT IS A MATTER OF RECORD THAT PROJECT OFFICE OPENED BY THE SAID ASSESSEE, ACCORDING TO PERMISSION GIVEN BY RBI, WAS TO WORK ONLY AS A LIASON OFFICE AND WAS NOT AUTHORIZED TO CARRY ON ANY BUSINESS ACTIVITY. THIS IS THE VITAL DIFFERENCE BETWEEN THE TWO CASES NAMELY THE CASE OF THE ASSESSEE AND HYUNDAI HEAVY INDUSTRIES CASE. 71. THERE IS A FORCE IN THE CONTENTION OF LD. DR THA T THE WORDS THAT THE COMPANY HEREBY OPEN ONE PROJECT OFFICE IN MUMBA I, INDIA FOR COORDINATION AND EXECUTION OF VASAI EAST DEVELOPMENT PROJECT FOR OIL AND NATURAL GAS CORPORATION LIMITED (ONGC), INDIA USED BY THE ASSESSEE COMPANY IN ITS RESOLUTION OF BOARD OF DIRECTORS M EETING DATED 3 RD APRIL, 2006 MAKES IT AMPLY CLEAR THAT PROJECT OFFIC E WAS OPENED FOR COORDINATION AND EXECUTION OF IMPUGNED PROJECT. IN ABSENCE OF ANY RESTRICTION PUT BY THE ASSESSEE IN THE APPLICATION MOVED BY IT TO RBI, IN THE RESOLUTIONS PASSED BY THE ASSESSEE COMPANY FOR THE OPEN ING OF THE PROJECT OFFICE AT MUMBAI AND THE PERMISSION GIVEN BY RBI, IT CANNOT BE SAID THAT MUMBAI PROJECT OFFICE WAS NOT A FIXED PLACE OF BUSINESS OF THE ASSESSEE IN INDIA TO CARRY OUT WHOLLY OR PARTLY THE IMP UGNED CONTRACT IN INDIA WITHIN THE MEANING OF ARTICLE 5.1 OF DTAA. T HESE DOCUMENTS MAKE IT CLEAR THAT ALL THE ACTIVITIES TO BE CARRIED OUT IN RESPECT OF IMPUGNED CONTRACT WILL BE ROUTED THROUGH THE PROJEC T OFFICE ONLY. PRE- SURVEYS WERE TO BE FIRST CONDUCTED WHICH WILL DETERMIN E THE NATURE OF THE DESIGNING ON THE BASIS OF WHICH PRE-ENGINEERING AN D PRE-DESIGNING WAS TO BE DONE WITH RESPECT TO ENTIRE PROJECT. THE N EXT MAIN CONDITION OF THE CONTRACT WAS THAT, AS A CONDITION PRECEDENT, T HE ASSESSEE HAD TO OBTAIN INSURANCE WITH RESPECT TO THE ENTIRE PROJECT W HICH HAS BEEN IN FACT OBTAINED BY THE ASSESSEE IN INDIA FOR WHICH THE ASSE SSEE HAS RECEIVED MAJOR PAYMENT DURING THE YEAR UNDER CONSIDE RATION ITSELF. THE SAID POLICY HAS NOT BEEN SHOWN TO BE RESTRICTED ONL Y WITH REGARD TO ACTIVITIES OF THE ASSESSEE OUTSIDE INDIA. ITA NO.5237/DEL/2010 56 72. ON THE BASIS OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF HYUNDAI HEAVY INDUSTRIES (SUPRA), IT HAS BEEN THE CASE O F ASSESSEE THAT THE ASSESSEE HAVING INSTALLATION CONTRACT WAS ENGAG ED IN A FABRICATION OF PLATFORM AND UNLESS FABRICATED PLATFOR M IS DELIVERED FROM THE COUNTRY, WHERE IT HAS BEEN FABRICATED, THE INSTAL LATION PE CANNOT SAID TO HAVE COME INTO EXISTENCE. THIS ARGUMENT OF TH E ASSESSEE IS NOT ACCEPTABLE FOR THE REASON THAT THE FACTS IN THAT CASE, AS OBSERVED BY HONBLE SC, WERE THAT THE CONTRACT WAS DIVISIBLE INTO TWO PARTS, ONE WAS FOR FABRICATION OF THE PLATFORM AND THE OTHER WA S INSTALLATION AND COMMISSIONING OF THE SAID PLATFORM. ON THESE FACTS, IT WAS THE CASE OF THE ASSESSEE THAT BEFORE THE FABRICATION WORK WAS COMPLE TED NO PE CAN BE SAID TO HAVE COME INTO EXISTENCE AS ITS MUMBAI OFFIC E CANNOT BE TERMED TO BE PE AS IT WAS ONLY A LIASON OFFICE AS PER P ERMISSION GIVEN BY RBI. IN THAT CASE MUMBAI OFFICE WAS NOT CONSIDERED AS PE AS IT WAS NOT PERMITTED BY RBI TO CARRY ON ANY BUSINESS ACTIVITY IN INDIA. THE ASSESSEE IN THAT CASE WAS HAVING NO OTHER PLACE OF BUSINESS IN INDIA PRIOR TO FABRICATION WORK WAS COMPLETED OUTSIDE INDIA . THEREFORE, IT WAS HELD THAT INSTALLATION PE CAME INTO EXISTENCE AT T HE POINT OF TIME WHEN FABRICATION WORK WAS COMPLETED AND FABRICATED M ATERIAL WAS DEPORTED TO INDIA. PRIOR TO THAT POINT OF TIME NO PART OF INCOME OF ASSESSEE COULD BE TAXED IN INDIA AS ASSESSEE IN THAT CASE DI D NOT HAVE ANY PE. AS AGAINST THAT, ACCORDING TO THE FACTS OF TH E PRESENT CASE, MUMBAI PROJECT OFFICE, AS PER RESOLUTION OF THE BOARD OF DIRECTORS DATED 3 RD APRIL, 2006, WAS OPENED FOR COORDINATION AND EXECUT ION OF PROJECT AND NO RESTRICTION HAS BEEN IMPOSED BY RBI ON THE WORK ING OF PROJECT OFFICE. THUS, IN THE CASE OF PRESENT ASSESSEE, THE FIXED PLACE PE HAS COME INTO EXISTENCE IN THE SHAPE OF MUMBAI PROJECT OF FICE ON THE DAY WHEN ASSESSEE WAS PERMITTED BY RBI TO OPEN ITS SUCH OFFICE . SUCH PROJECT OFFICE IS PE WITHIN THE MEANING OF ARTICLE 5 .1 OF DTAA AS THE ASSESSEE HAS WHOLLY OR PARTLY CARRIED OUT ITS BUSINESS ACTIV ITY THROUGH IT. ITA NO.5237/DEL/2010 57 73. HERE, IT HAS BEEN THE CASE OF THE ASSESSEE THAT ARTIC LE 5.3 HAS TO BE READ IN ISOLATION. THIS ARGUMENT OF THE ASSESSEE CANN OT BE ACCEPTED IN VIEW OF ABOVE DISCUSSION. THIS PROPOSITION IS ALSO NOT SUPPORTED BY THE PROVISIONS CONTAINED IN DTAA. TO EXP LAIN AND PROPERLY UNDERSTAND IT WILL BE RELEVANT TO REPRODUCE THE PROVISIONS OF ARTICLE 5 WHICH DEFINES PERMANENT ESTABLISHMENT:- ARTICLE 5 PERMANENT ESTABLISHMENT 1. FOR THE PURPOSES OF THIS CONVENTION, THE TERM PERMANENT ESTABLISHMENT MEANS A FIXED PLACE OF BUSINESS THROUGH WHICH THE BUSINESS OF AN ENTERPRISE IS WHOLLY OR PARTLY CARRIED ON. 2. THE TERM PERMANENT ESTABLISHMENT SHALL INCLUDE ESPECIALLY- (A) A PLACE OF MANAGEMENT; (B) A BRANCH; (C) AN OFFICE; (D) A FACTORY; (E) A WORKSHOP; AND (F) A MINE, AN OIL OR GAS WELL, A QUARRY OR ANY OTHER PLACE OF EXTRACTION OF NATURAL RESOURCES. 3. THE TERM PERMANENT ESTABLISHMENT LIKEWISE ENCOMPASSES A BUILDING SITE, A CONSTRUCTION, ASSEMBLY OR INSTALLATION PROJECT OR SUPERVISORY ACTIVITIES IN CONNECTION THEREWITH, BUT ONLY WHERE SUCH SITE, PROJECT OR ACTIVITIES CONTINUE FOR A PERIOD OF MORE THAN NINE MONTHS. 4. NOTWITHSTANDING THE PRECEDING OF THIS ARTICLE, THE TERM PERMANENT ESTABLISHMENT SHALL BE DEEMED NOT TO INCLUDE- (A) THE USE OF FACILITIES SOLELY FOR THE PURPOSE OF STORAGE, DISPLAY OR DELIVERY OF GOODS OR MERCHANDISE BELONGING TO THE ENTERPRISE; (B) THE MAINTENANCE OF A STOCK OF GOODS OR MERCHANDISE BELONGING TO THE ENTERPRISE SOLELY FOR THE PURPOSE OF STORAGE, DISPLAY OR DELIVERY; (C) THE MAINTENANCE OF A STOCK OF GOODS OR MERCHANDISE BELONGING TO THE ENTERPRISE SOLELY FOR THE PURPOSE OF PROCESSING BY ANOTHER ENTERPRISE; ITA NO.5237/DEL/2010 58 (D) THE MAINTENANCE OF A FIXED PLACE OF BUSINESS SOLELY FOR THE PURPOSE OF PURCHASING GOODS OR MERCHANDISE OR FOR COLLECTING INFORMATION, FOR THE ENTERPRISE; (E) THE MAINTENANCE OF A FIXED PLACE OF BUSINESS SOLELY FOR THE PURPOSE OF ADVERTISING, THE SUPPLY OF INFORMATION, SCIENTIFIC RESEARCH OR ANY OTHER ACTIVIT Y, IF IT HAS A PREPARATORY OR AUXILIARY CHARACTER IN TH E TRADE OR BUSINESS OF THE ENTERPRISE; (F) THE MAINTENANCE OF A FIXED PLACE IF BUSINESS SOLELY FOR ANY COMBINATION OF ACTIVITIES MENTIONED IN SUB-PARAGRAPHS (A) TO (E) OF THIS PARAGRAPH, PROVIDED THAT THE OVERALL ACTIVITY OF THE FIXED PLACE OF BUSI NESS RESULTING FROM THIS COMBINATION IS OF A PREPARATORY OR AUXILIARY CHARACTER. 5. NOTWITHSTANDING THE PROVISIONS OF PARAGRAPHS (1) AND (2) IF A PERSON OTHER THAN AN AGENT OF INDEPENDENT STATUS TO WHOM PARAGRAPH (6) APPLIES IS ACTING ON BEHALF OF AN ENTERPRISE AND HAS, AND HABITUALLY EXERCISES, IN A CONTRACTING STATE AN AUTHORITY TO CONCLUDE CONTRACTS IN THE NAME OF THE ENTERPRISE, THAT ENTERPRISE SHALL BE DEEMED TO HAVE A PERMANENT ESTABLISHMENT IN THAT STATE IN RESPECT OF ANY ACTIVITIES WHICH THAT PERSON UNDERTAKES FOR THE ENTERPRISE UNLESS THE ACTIVITIES OF SUCH PERSON ARE LIMITED TO THOSE MENTIONED IN PARAGRAPH (4) WHICH, I F EXERCISED THROUGH A FIXED PLACE OF BUSINESS, WOULD NOT MAKE THIS FIXED PLACE OF BUSINESS A PERMANENT ESTABLISHMENT BY VIRTUE OF THAT PARAGRAPH. 6. AN ENTERPRISE SHALL NOT BE DEEMED TO HAVE A PERMANENT ESTABLISHMENT IN A CONTRACTING STATE MERELY BECAUSE IT CARRIES ON BUSINESS IN THAT STATE THROUGH A BROKER, GENERAL COMMISSION AGENT OR ANY OTHER AGENT OF AN INDEPENDENT STATUS, WHERE SUCH PERSONS ARE ACTING IN THE ORDINARY COURSE OF THEIR BUSINESS. 7. THE FACT THAT A COMPANY WHICH IS A RESIDENT OF A CONTRACTING CONTROLS OR IS CONTROLLED BY A COMPANY WHICH IS A RESIDENT OF THE OTHER CONTRACTING STATE, O R WHICH CARIES ON BUSINESS IN THAT OTHER STATE (WHETHER THROUGH A PERMANENT ESTABLISHMENT OR OTHERWISE) ITA NO.5237/DEL/2010 59 SHALL NOT OF ITSELF CONSTITUTE EITHER COMPANY A PERMANENT ESTABLISHMENT OF THE OTHER. 74. ARTICLE 5.1 DESCRIBES THAT FOR THE PURPOSE OF DTAA , THE TERM PERMANENT ESTABLISHMENT MEANS A FIXED PLACE OF BUSINE SS THROUGH WHICH THE BUSINESS OF AN ENTERPRISE IS WHOLLY OR PARTLY CARRIED ON. ARTICLE 5.2 STATES THAT THE TERM PERMANENT ESTABLISHME NT SHALL INCLUDE ESPECIALLY (A) A PLACE OF MANAGEMENT; (B) A BRANCH; (C) AN OFFICE; (D) A FACTORY; (E) A WORKSHOP AND (F) A MINE , AN OIL OR GAS WELL, A QUARRY OR ANY OTHER PLACE OF EXTRACTION OF NATURAL RESOURCES. ARTICLE 5.2 HAS ENLARGED THE MEANING OF PERMANENT ESTABLISHMENT IN ADDITION TO WHAT HAS BEEN STATED IN ARTICLE 5.1. ARTICLE 5.3 USED THE WORDS LIKEWISE ENCOMPASSES AND THESE ITEMS ARE, A BUILDING SIT E; A CONSTRUCTION; ASSEMBLY OR INSTALLATION PROJECT OR SUPERV ISOR ACTIVITY IN CONNECTION THEREWITH BUT ONLY IN A CASE WHERE SUCH SIT E/PROJECT OR ACTIVITY CONTINUE FOR A PERIOD OF MORE THAN NINE MO NTHS. SO, IT HAS FURTHER ENHANCED THE TERM PERMANENT ESTABLISHMENT T O THESE ENTITIES. THEREFORE, IT WILL BE WRONG TO SAY THAT AR TICLE 5.3 IS AN EXCLUSIONARY CLAUSE, RESTRICTING THE SCOPE OF ARTICLE 5 .1 OR ARTICLE 5.2. 75. RELIANCE ON THE COMMENTARY OF OECD OF ARTICLE 5 .3 IS MISPLACED AS FOR THE PURPOSE OF RELYING ON ARTICLE 5.3, IT HAS B EEN PRESUMED THAT NO PE OF THE ASSESSEE EXISTS WITHIN THE MEANING OF ARTICL E 5.1 & 5.2. IT HAS ALREADY BEEN POINTED OUT THAT ARTICLE 5.3 ONLY E XTENDS THE SCOPE OF PE AND IT CANNOT BE READ IN ISOLATION. OTHERWISE ALSO , IF THE PE OF A NON-RESIDENT ENTITY EXISTS UNDER ARTICLE 5.1 & 5.2 THA N IT IS NOT NECESSARY THAT IT SHOULD ALSO FALL WITHIN THE SCOPE OF A RTICLE 5.3 TO MAKE IT LIABLE TO BE TAXED IN THE SOURCE COUNTRY. IN THE PRESENT CASE, IT HAS ALREADY BEEN HELD THAT THE PE OF THE ASSESSEE CAME INTO EXISTENCE ON THE OPENING OF PROJECT OFFICE IN MUMBAI. SIMILARLY RELIANCE ON THE DECISION OF TRIBUNAL IN THE CASE OF DCIT VS. HYNDAI HE AVY IDNSUTRIES CO. LTD. 31 SOT 482 (DEL) IS MISPLACED AS IN THAT CASE ASSESSE ES MUMBAI ITA NO.5237/DEL/2010 60 OFFICE WAS NOT CONSIDERED AS PE FOR THE REASON THAT IT WAS NOT ALLOWED TO CARRY OUT ANY BUSINESS ACTIVITY BY THE RBI AND IT W AS TO WORK ONLY AS LIAISON OFFICE. 76. ARTICLE 5.4 IS AN EXCLUSIONARY CLAUSE WHICH DESCRIB ES THAT IN SPECIFIED CIRCUMSTANCES PERMANENT ESTABLISHMENT WILL N OT BE CONSIDERED TO BE PERMANENT ESTABLISHMENT. ARTICLE 5. 4 STARTS WITH THE WORDS NOTWITHSTANDING PRECEDING OF THIS ARTICLE AND EXCLUSIONS ARE (A) USE OF THE FACILITIES SOLELY FOR THE PURPOSES OF STORAGE, DISPLAY OR DELIVERY OF GOODS, MERCANTILE BELONGING TO THE ENTE RPRISES; (B) THE MAINTENANCE OF STOCK OF GOODS OR MERCANTILE BELONGING TO THE ENTERPRISE SOLELY FOR THE PURPOSE OF STORAGE, DISPLAY OR DELIVERY; (C) THE MAINTENANCE OF STOCK OF GOODS OR MERCANTILE BELONGING TO ENTERPRISE SOLELY FOR THE PURPOSE OF PROCESSING BY ANOTHER ENTERPR ISE; (D) THE MAINTENANCE OF A FIXED PLACE OF BUSINESS SOLELY FOR THE PURPOSE OF PURCHASING GOODS OR MERCHANDISE OR FOR COLLECTING INFO RMATION FOR THE ENTERPRISE; (E) THE MAINTENANCE OF A FIXED PLACE OF BUSINESS SOLELY FOR THE PURPOSE OF ADVERTISING, THE SUPPLY OF INFORMATION, SCIENTIFIC RESEARCH OR ANY OTHER ACTIVITY, IF IT HAS A PREPARATO RY OR AUXILIARY CHARACTER IN THE TRADE OR BUSINESS OF THE ENTERPRISE; A ND (F) THE MAINTENANCE OF FIXED PLACE IF BUSINESS SOLELY FOR ANY C OMBINATION OF ACTIVITIES MENTIONED IN SUB-PARAGRAPHS (A) TO (E) PROV IDED THAT OVERALL ACTIVITY OF THE FIXED PLACE OF BUSINESS RESULTING FROM THIS COMBINATION IS OF A PREPARATORY OR AUXILIARY CHARACTER. THE OTHER CLAUSES ARE NOT RELEVANT FOR THE PURPOSE OF THE PRESENT CASE AS IT IS NO T EVEN THE CASE OF ASSESSEE THAT ITS MUMBAI PROJECT OFFICE CANNOT BE CON SIDERED TO BE PERMANENT ESTABLISHMENT IN THE LIGHT OF ARTICLE 5.5 , 5.6 AND 5.7. 77. HERE, TO CONTEST THE TAXABILITY OF OUTSIDE INDIA REVENUE, IT IS THE MAIN CASE OF THE ASSESSEE THAT ITS MUMBAI PROJECT OFFICE CANNOT HELD TO BE PERMANENT ESTABLISHMENT WITHIN THE MEANING OF AR TICLE 5.1 AND ITA NO.5237/DEL/2010 61 5.2 AS ITS MUMBAI PROJECT OFFICE DOES NOT HAVE ANY ROL E TO PLAY IN THE BUSINESS ACTIVITY OF THE ASSESSEE COMPANY EITHER WHOLLY OR PARTLY. IN ABSENCE OF EXISTENCE OF PE WITHIN THE MEANING OF ARTI CLE 5.1 AND ARTICLE 5.2 THE PE OF THE ASSESSEE CAN BE SAID TO HAVE COME INTO EXISTENCE ONLY WHEN FABRICATED PLATFORM WAS DEPORTED FROM MALA YSIA TO THE OFFSHORE SITE OF ONGC AND FROM THAT DATE THE INSTALLAT ION PE OF THE ASSESSEE CAN BE SAID TO HAVE COME INTO EXISTENCE WITHIN T HE MEANING OF ARTICLE 5.3. TO CONTEND THAT MUMBAI PROJECT OFF ICE CANNOT BE TERMED TO BE PERMANENT ESTABLISHMENT EITHER WITHIN THE MEA NING OF ARTICLE 5.1 OR ARTICLE 5.2, IT IS THE CASE OF LD. AR THAT ITS MUMBAI PROJECT OFFICE IS NOT INVOLVED IN ANY CORE ACTIVITY OF BUSINESS. THE ACTIVITY, IF ANY, CARRIED ON BY THE MUMBAI PROJECT OFFICE WAS IN THE C HARACTER OF PREPARATORY OR AUXILIARY WHICH IS EXCLUDED WITHIN TH E MEANING OF ARTICLE 5.4. IT IS ALSO THE CASE OF LD. AR THAT THE ACCOUNTS M AINTAINED BY THE ASSESSEE IN INDIA HAVE DEMONSTRATED THAT MUMBAI PROJECT OFFICE DID NOT INCUR ANY EXPENDITURE RELATING TO PROJECT AND T HE EMPLOYEES DEPLOYED THERE HAVE NO TECHNICAL QUALIFICATION OR SKILL TO ENABLE THEM TO CARRY OUT THE ACTIVITY OF THE PROJECT. WE HAVE CAREFULLY CONSIDERED THESE ARGUMENTS OF LD. AR. IT HAS ALREADY BEEN DISCUSSED THAT IN ABSENCE OF ANY RESTRICTION PUT BY RBI ON THE ACTIVITI ES OF MUMBAI PROJECT OFFICE, THE SAID OFFICE IS IN THE CHARACTER O F PERMANENT ESTABLISHMENT IN VIEW OF ARTICLE 5.1 AND 5.2. IF IT IS SO, THEN MATERIAL IS AVAILABLE ON RECORD ACCORDING TO WHICH IT CAN BE SAI D THAT PERMANENT ESTABLISHMENT OF THE ASSESSEE HAS COME INTO EXISTENCE ON T HE OPENING OF MUMBAI PROJECT OFFICE. THERE IS NO FORCE IN THE ARGUMENTS OF LD. AR THAT, IN ANY CASE, ITS MUMBAI PROJECT OFFIC E FALLS UNDER EXCLUSIONS DESCRIBED UNDER ARTICLE 5.4, AS THE ACTIVITI ES CARRIED ON BY THE MUMBAI PROJECT OFFICE ARE IN THE NATURE OF PREP ARATORY OF AUXILIARY IN NATURE. THE WAY THE TERMS OF THE CONTRACT ARE DE SCRIBED AND THE WAY THE WORK ON CONTRACT HAS TO PROCEED CLEARLY DESCR IBE THAT IN ALL THE ACTIVITIES OF CONTRACT THERE WILL BE THE ROLE OF MUM BAI PROJECT OFFICE AS ITA NO.5237/DEL/2010 62 THE SAME HAS TO WORK AS A CHANNEL BETWEEN ASSESSEE COMPANY AND ONGC. IF PE OF THE ASSESSEE EXISTS WITHIN THE MEANING OF ARTICLE 5.1 AND 5.2 AND ASSESSEE CLAIMS THAT DESPITE THERE BEING PE I N TERMS OF CLAUSE 5.1 AND 5.2, IT FALLS UNDER EXCLUSIONARY ARTICL E 5.4 THEN ONUS IS ON ASSESSEE TO PROVE THAT ACTIVITIES OF ITS PE ARE IN THE NATURE OF PREPARATORY OR AUXILIARY IN NATURE. NO MATERIAL HA S BEEN BROUGHT ON RECORD BY THE ASSESSEE TO PROVE THE SAID FACT. THE ARGU MENTS PUT FORWARD IN THIS RESPECT ARE ONLY BY INFERENCE SUCH AS T HE ACCOUNTS MAINTAINED BY THE ASSESSEE IN INDIA THROUGH WHICH IT IS THE ARGUMENT OF LD. COUNSEL OF THE ASSESSEE THAT IT DOES NOT CONTAIN A NY EXPENDITURE RELATING TO EXECUTION OF THE CONTRACT. BUT SUCH ARG UMENT IS NOT ACCEPTABLE AS THE MAINTENANCE OF ACCOUNT IS IN THE HA NDS OF ASSESSEE AND MERE THE MODE OF MAINTAINING THE ACCOUNTS ALONE CANNOT DETERMINE THE CHARACTER OF PE AS THE ROLE OF PE ONLY WILL BE RELEVANT TO DETERMINE THAT WHAT KIND OF ACTIVITIES IT HAS CARRIED ON. AS POINTED OUT EARLIER THE WAY THE CONTRACT HAS TO PROCEED, MUMBAI PROJECT OFFICE OF THE ASSESSEE HAS TO PLAY A VITAL ROLE IN THE EXECUTION O F ENTIRE CONTRACT AND IF ASSESSEE WANTS TO CONTEND OTHERWISE, THE ONUS IS ON ASSESSEE AND NOT ON THE REVENUE. NO MATERIAL HAS BEEN BROUGH T ON RECORD BY THE ASSESSEE TO SHOW THAT ITS MUMBAI OFFICE DOES NOT HAVE ANY ROLE TO PLAY IN THE EXECUTION OF CONTRACT, THEREFORE, THE A RGUMENT OF THE ASSESSEE CANNOT BE ACCEPTED THAT THE MUMBAI PROJECT OFF ICE HAS CARRIED OUT ONLY PREPARATORY OR AUXILIARY ACTIVITIE S SO AS TO BRING THE PE OF THE ASSESSEE UNDER EXCLUSIONARY ARTICLE 5.4. THEREFO RE, SUCH ARGUMENT OF THE ASSESSEE HAS TO BE REJECTED AND THIS ISSUE IS DECIDED IN FAVOUR OF REVENUE. 78. HAVING COME TO THE CONCLUSION THAT THE PE OF THE ASSESSEE EXISTED IN INDIA IN ACCORDANCE WITH ARTICLE 5.1 AND 5.2 AND IT DOES NOT FALL UNDER EXCLUSIONARY CLAUSE, NOW THE QUESTION WHICH WILL REQUIRED TO BE DETERMINED IS THAT WHETHER AO IS JUSTIFIED IN ATTRI BUTING 25% OF THE ITA NO.5237/DEL/2010 63 OUTSIDE INDIA REVENUE TO THE PE OF THE ASSESSEE IN INDIA . THERE IS LACK OF MATERIAL MADE AVAILABLE ON RECORD TO ASCERTAIN AS TO WHAT EXTENT THE ACTIVITIES OF BUSINESS WERE CARRIED ON BY THE ASSESSEE THRO UGH ITS MUMBAI PROJECT OFFICE AND SUCH FACT HAS TO BE DETERMI NED BEFORE DECIDING THE PERCENTAGE OF ATTRIBUTION OF THE OUTSID E INDIA ACTIVITY OF THE ASSESSEE TO ITS PE IN INDIA. THE AO IN THE PRESENT C ASE HAS ATTRIBUTED 25% OF ITS OUTSIDE INDIA ACTIVITY AS INCOME RELATED TO PE OF THE ASSESSEE TO INDIA. BUT WE FIND NO MATERIAL ON RECO RD TO SUPPORT SUCH ATTRIBUTION PARTICULARLY IN ABSENCE OF ANY REASON ING OR BASIS GIVEN FOR THAT. NECESSARY MATERIAL IN THIS RESPECT HAS TO BE BROUGHT ON RECORD TO ARRIVE AT A PROPER CONCLUSION THAT WHAT PE RCENTAGE WILL BE APPROPRIATE TO BE ATTRIBUTED TO THE PE OF THE ASSESSEE IN INDIA DURING THE YEAR UNDER CONSIDERATION. THEREFORE, WE CONSIDER IT JUST AND PROPER TO RESTORE THIS ISSUE TO THE FILE OF AO FOR PROPER DETE RMINATION THEREOF AFTER ASCERTAINING THE NECESSARY FACTS AND AFTER BRINGI NG THE PROPER MATERIAL OR RECORD TO SUPPORT THAT CONCLUSION. WE DI RECT ACCORDINGLY. NEEDLESS TO MENTION THAT AO WILL GIVE PROPER OPPORTUN ITY OF HEARING TO THE ASSESSEE. 79. SO FAR AS IT RELATES TO LEVY OF INTEREST U/S 234B, IT IS THE CASE OF THE ASSESSEE THAT IT BEING NON-RESIDENT, SEC. 195 OF THE ACT PUTS AN OBLIGATION ON THE PAYER I.E. ANY PERSON RESPONSIBLE FO R PAYING TO THE NON-RESIDENT, TO DEDUCT INCOME TAX SOURCE AT THE RATE S IN FORCE FROM SUCH PAYMENTS EXCLUDING THOSE INCOMES WHICH ARE CHARGEA BLE UNDER THE HEAD SALARIES. THEREFORE, THE ENTIRE TAX WHICH IS PAYABLE ON SUCH PAYMENTS MADE BY THE PAYEE TO THE NON-RESIDENT IS TO B E DEDUCTED AT SOURCE. SEC. 201 OF THE ACT LAYS DOWN THE CONSEQUENCE S OF THE FAILURE TO DEDUCT OR PAY. THESE CONSEQUENCES INCLUDE NOT ONLY THE LIABILITY TO PAY THE AMOUNT WHICH SUCH A PERSON WAS REQUIRED TO DED UCT AT SOURCE FROM THE PAYMENTS MADE TO A NON-RESIDENT BUT ALSO PENA LTIES, ETC. ONCE IT IS FOUND THAT THE LIABILITY WAS THAT OF THE P AYER AND THE PAYER ITA NO.5237/DEL/2010 64 HAS DEFAULTED IN DEDUCTING THE TAX AT SOURCE, THE DEP ARTMENT CAN TAKE ACTION AGAINST THE PAYER UNDER THE PROVISIONS OF SEC. 2 01 OF THE ACT AND COMPUTE THE AMOUNT ACCORDINGLY. IF THE PERSON ( PAYER) WHO HAD TO MAKE PAYMENTS TO THE NON-RESIDENT HAD DEFAULTED IN DEDUCTING THE TAX AT SOURCE FROM SUCH PAYMENTS, THE NON-RESIDENT IS NO T ABSOLVED FROM PAYMENT OF TAXES THEREUPON. IN SUCH A CASE, THE NON-RESIDENT IS LIABLE TO PAY TAX BUT THE QUESTION TO PAYMENT OF ADV ANCE TAX WOULD NOT ARISE. THEREFORE, IT WOULD BE IMPERMISSIBLE FOR THE R EVENUE TO CHARGE ANY INTEREST U/S 234B OF THE ACT. FOR RAISING SUCH CON TENTION RELIANCE HAS BEEN PLACED ON THE FOLLOWING DECISIONS: (1) DIREC TOR OF INCOME TAX VS. JACABS CIVIL INCORPORATED ETC. 330 ITR 578 (DEL.) , (2) CIT VS. SEDCO FOREX INTERNATIONAL DRILLING CO. LTD. 264 ITR 320. THE COPIES OF THESE DECISIONS ARE ENCLOSED BY THE ASSESSEE IN THE PAPER BOOK A T PAGES 207 TO 212 AND 202 TO 206 RESPECTIVELY. 80. IN THIS VIEW OF THE SITUATION, WE FIND THAT INTER EST U/S 234B SHALL NOT BE CHARGEABLE IN THE CASE OF ASSESSEE. IT IS SEEN THA T THOUGH THIS ISSUE WAS RAISED BY THE ASSESSEE BEFORE AO WHO HAS FOLLOWED THE DIRECTIONS OF DRP. THE DRP HAS DEALT WITH THIS ISSUE CO LLECTIVELY IN PARA 5.3 OF ITS ORDER ALONG WITH INTEREST LEVIED U/S 234A A ND 234C, WHEREIN MAINLY RELYING UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ANJUM M.H. GHASWALA 252 ITR 1 IT IS HELD THAT INTE REST LEVIED UNDER THE SECTIONS ARE COMPENSATORY IN NATURE AND GETS AUTOMA TICALLY ATTRACTED FROM DEFAULT OF THE ASSESSEE. LD. DRP HAS ALSO RELIED UPON THE DECISION IN THE CASE OF INSILCO LTD. REPORTED IN 3 21 ITR 105. IN THIS REGARD IT MAY BE MENTIONED THAT IT WAS NOT A CASE OF NON-RESIDENT WHERE TAX WAS DEDUCTIBLE U/S 195 AND THE CASE OF ASSESSEE WAS THAT LEVY OF INTEREST U/S 234B WAS NOT SPECIFICALLY DIRECTED TO BE CHARGED IN THE ASSESSMENT ORDER. THE FACTS OF THE PRESENT CASE ARE ENTIRELY DIFFERENT. ACCORDING TO THE FACTS OF THE PRESENT CASE THE CASE RELATES TO NON-RESIDENT, WHERE TAX WAS DEDUCTIBLE UPON THE AMOUN TS PAID TO IT U/S ITA NO.5237/DEL/2010 65 195 AND THE AFOREMENTIONED DECISION OF DELHI HIGH CO URT IN THE CASE OF DIT VS. JACABS CIVIL INCORPORATE (SUPRA) WILL BE APPLI CABLE. AS THESE DECISIONS HAVE NOT BEEN CONSIDERED BY THE DRP AND THE AO, WE RESTORE THIS ISSUE TO THE FILE OF AO TO CONSIDER THEM AND THERE AFTER DECIDE THIS ISSUE AS PER LAW KEEPING IN VIEW THE AFOREMENTIONED DE CISIONS. WE DIRECT ACCORDINGLY. 81. AS IT RELATES TO LEVY OF INTEREST U/S 234D THE SAME WAS STATED TO BE CONSEQUENTIAL. THE AO WILL COMPUTE THE INTEREST A CCORDINGLY AFTER DETERMINING THE INCOME OF THE ASSESSEE IN ACCORDANCE WI TH OUR AFOREMENTIONED DIRECTIONS. 82. IN THE RESULT, APPEAL IS PARTLY ALLOWED FOR STATIST ICAL PURPOSES IN THE MANNER AFORESAID. THE ORDER PRONOUNCED IN THE OPEN COURT ON 30.08.20 11. SD/- SD/- [G.E. VEERABHADRAPPA] [I.P. BANSAL] VICE PRESIDENT JUDICIAL MEMBER DATED, 30.08.2011. *DK *KAVITA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES
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