GIL Mauritius Holding Ltd., Gurgaon V. ADIT, Dehradun

ITA 5340/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65389 (ITAT-DELHI)
• Duration Of Justice: 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 30-05-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 30-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Double taxation relief; Opportunity of being heard; Permanent establishment
• Section: 143(3); 234B

Judgement Text

ITA NO.5340/D/2011 ASSTT.YEAR: 2008-09 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER AND SHRI CHANDRAMOHAN GARG, JUDICIAL MEMBER ITA NO. 5340/DEL/2011 ASSESSMENT Y EAR: 2008-09 GIL MAURITIUS HOLDINGS LIMITED, VS ASSTT. DI RECTOR OF INCOME TAX C/O S.R. BATLIBOI & CO., (INTERNATIONAL TAXATION), GOLF VIEW CORPORATE TOWER-B, DEHRADU N. NEAR DLF GOLF COURSE, SECTOR 42, GURGAON 122 002, HARYANA. (PAN: AACCG1350J) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI PERCY PARDIWALA, AR REPONDENT BY: SHRI DEBJYOTI DASS CIT,DR O R D E R PER CHANDRAMOHAN GARG, JUDICIAL MEMBER THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE COM PANY AGAINST THE ORDER OF THE ASSESSING OFFICER DATED 30.09.2011 U/S 143(3)/144C(13) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS T HE ACT) PASSED AS PER DIRECTIONS OF LEARNED DISPUTE RESOLUTION PANEL-II, (DRP) DELHI DATED 12.09.2011 U/S 144C(5) OF THE ACT FOR AY 2008-09. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN TH IS APPEAL:- ITA NO.5340/D/2011 ASSTT.YEAR: 2008-09 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. ASSESSING OFFICER BASED ON DIRECTIONS OF DRP; 1. ERRED IN ASSESSING TOTAL INCOME AT RS.1,452,318,561 /- AS AGAINST NIL RETURNED INCOME. 2. ERRED IN HOLDING THAT THE APPELLANT, CONSTITUTES A PERMANENT ESTABLISHMENT (PE) IN INDIA, IN ACCORDA NCE WITH ARTICLE 5(2)(I) OF INDIA MAURITIUS DOUBLE TA XATION AVOIDANCE AGREEMENT, WITHOUT APPRECIATING THE FACT THAT THE DURATION OF THE CONTRACT WITH BRITISH GAS WAS L ESS THAN NINE MONTHS. 3. ERRED IN CALCULATING THE TOTAL TAX PAYABLE AFTER AD DING AMOUNT OF RS.72,197,190 TOWARDS REFUND ALREADY PAID WITHOUT APPRECIATING THE FACT THAT NO REFUND WAS PA ID TO THE APPELLANT. 4. ERRED IN LEVYING INTEREST UNDER SECTION 234B WITHOU T APPRECIATING THE FACT THAT THE APPELLANT IS A NON-R ESIDENT ASSESSEE AND ITS ENTIRE REVENUES/RECEIPTS ARE SUBJE CT TO TAX WITHHOLDING IN INDIA UNDER SECTION 195 OF THE A CT AND THE APPELLANT IS NOT LIABLE TO PAY ADVANCE TAX IN R ESPECT OF SUCH REVENUES. 5. ERRED IN LEVYING INTEREST UNDER SECTION 234D WITHOU T APPRECIATING THE FACT THAT NO REFUND WAS GRANTED TO THE APPELLANT. 3. BRIEFLY STATED, THE FACTS GIVING RISE TO THIS AP PEAL ARE THAT THE ASSESSEE FILED ITS RETURN WHICH WAS SELECTED FOR SCRUTINY AN D A DRAFT ASSESSMENT ORDER DATED 30.12.2010 WAS PASSED AND ISSUED TO THE ASSES SEE ON TOTAL INCOME OF RS.1,452,318,561/- TO BE TAXED @15% AS PER ARTICLE 12 OF INDIA-MAURITIUS ITA NO.5340/D/2011 ASSTT.YEAR: 2008-09 3 DTAA, INTEREST CHARGEABLE AS PER LAW, ALONG WITH IN ITIATION OF PENALTY PROCEEDINGS. 4. THE ASSESSEE FILED OBJECTIONS WITH LD. DRP AGAIN ST THE DRAFT ORDER RAISING FOLLOWING OBJECTIONS WITH FORM NO.35A:- 1. OBJECTION 1-ASSESSMENT OF INCOME AT RS.1,452,318,561 BASED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AO HAS ERRED IN LAW AND FACT, IN ASSESSIN G THE ASSESSEES INCOME AT RS.1,452,318,561 AS AGAINS T THE RETURNED INCOME OF RS. NIL. 1.2 OBJECTION 2 CONSTITUTION OF PERMANENT ESTABLISHMENT (PE) IN INDIA. BASED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AO HAS ERRED IN LAW AND IN FACT, IN HOLDI NG THAT THE ASSESSEE HAS A FIXED PLACE OF BUSINESS IN INDIA CONSTITUTING A PE IN INDIA UNDER ARTICLE 5 OF THE I NDIA- MAURITIUS DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA/INDIA-MAURITIUS TAX TREATY). WITHOUT PREJUDICE TO THE ABOVE, BASED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS E RRED IN AND CIRCUMSTANCES OF THE CASE, THE LEARNED ASSESSIN G OFFICER HAS ERRED IN STATING IN THE DRAFT ASSESSMEN T ORDER (COPY ENCLOSED AS EXHIBIT 1) THAT THE ASSESSEES PR OJECT HAS CONTINUED FOR MORE THAN ONE YEAR AND THEREFORE THE ASSESSEE ALSO CONSTITUTES AS INSTALLATION PE IN IND IA. 1.3 OBJECTION 3 WITHOUT PREJUDICE ARGUMENT THAT SE CTION 44BB OF THE ACT APPLIES. BASED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN AND CIRCUMSTANCES OF THE CASE AND WITHOUT PREJUDICE TO OTHER OBJECTIONS, THE LD. ASSESSING OFFICER HAS ERR ED IN LAW AND IN FACT, IN NOT APPLYING THE PROVISIONS OF SECTION 44BB OF THE INCOME TAX ACT WHILE COMPUTING THE TAXA BLE ITA NO.5340/D/2011 ASSTT.YEAR: 2008-09 4 INCOME IN RESPECT OF THE REVENUES RECEIVED FROM SER VICES RENDERED BY THE ASSESSEE. 1.4 OBJECTION 4 TAXABILITY OF ASSESSEES INCOME AS ROYALTY. BASED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. ASSESSING OFFICER HAS ERRED IN LAW AND IN F ACT, IN TAXING THE REVENUE FROM THE CONTRACT WITH BG EXPLORATION AND PRODUCTION INDIA LIMITED (BG) AS ROYALTY. 1.5 OBJECTION 5- TREATING OF ASSESSEES INCOME AS FEES FOR TECHNICAL SERVICES (FTS) BASED ON THE FACTS A ND IN THE CIRCUMSTANCES OF THE CASE, THE LD. ASSESSING OF FICER HAS ERRED IN LAW AND IN FACT IN STATING THAT INCOME FROM PROVISIONS OF SERVICES TO BG IN FTS. 5. LEARNED DRP-II CONSIDERED ABOVE OBJECTIONS AND H ELD THAT THE ACTIVITIES OF THE ASSESSEE COMPANY DID CONSTITUTE P ERMANENT ESTABLISHMENT IN INDIA. REGARDING OBJECTIONS NO. 3, 4 AND 5, DRP-II OBSERVED THAT AS IT HAS BEEN ALREADY HELD THAT THE ASSESSEE DID HAVE A PERM ANENT ESTABLISHMENT IN INDIA, THE INCOME FROM FEE FOR TECHNICAL SERVICES I N THE CASE CAN BE TAXED ONLY UNDER ARTICLE 7 RELATING TO BUSINESS INCOME. THE ASSESSING OFFICER FOLLOWING THE DIRECTIONS OF DRP-II CONCLUDED THE AS SESSMENT WITH A FINAL FINDING WHICH READS AS UNDER:- ON THE BASIS OF ABOVE FACTS AND THE POSITION THIS PANEL IS OF THE VIEW THAT THE INCOME OF THE ASSESSEE IS T O BE TAXED NOT AS ROYALTY OR FEES FOR TECHNICAL SERVICES BUT A S INCOME FROM BUSINESS. AS THE ASSESSEE IS ENGAGED IN THE S ERVICES OF LAYING A PIPELINE IN THE OFFSHORE AREA FOR THE E XTRACTION OF OIL AND GAS THE SERVICES ARE IN CONNECTION WITH THE ITA NO.5340/D/2011 ASSTT.YEAR: 2008-09 5 EXTRACTION/PRODUCTION OF OIL/GAS AND THEREFORE COV ERED BY SEC 44BB. IN VIEW OF THIS, THIS PANEL IS INCLINED TO AGREE WITH THE WITHOUT PREJUDICE PLEA MADE BY THE ASSES SEE THAT IN CASE IT IS HELD THAT A P.E. EXISTS, ITS INCOME M AY BE TAXED UNDER SECTION 44BB. THE ASSESSING OFFICER IS THERE FORE DIRECTED TO TAX THE ASSESSEES INCOME FROM EXECUTIO N OF ITS CONTRACTS WITH BG NOT AS ROYALTY OR FEES FOR TECHNI CAL SERVICES BUT AS BUSINESS INCOME UNDER SECTION 44BB OF THE I.T.ACT. 4. IN VIEW OF DIRECTIONS OF LD. DRP, THE ASSESSMENT IS FINALIZED AS UNDER:- GROSS RECEIPTS RS. 1,45,23,18,561/- INCOME U/S 44 BB(1) RS. 14,52,31,856/- INCOME ROUNDED OFF RS. 14,52,31,860/- ACCORDINGLY, INCOME OF THE ASSESSEE IS THEREFORE A SSESSED AT RS.14,52,31,860/- UNDER SECTION 143(3) READ WITH SEC. 144C(13). CHARGE INTEREST UNDER SECTION 234B AND 2 34D OF IT ACT. ALLOW CREDIT OF PREPAID TAXES. PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT, IS BEING INITIATED SEPARATELY. 6. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US AG AINST THE ABOVE IMPUGNED ORDER. 7. WE HAVE HEARD RIVAL ARGUMENTS OF BOTH THE PARTIE S IN THE LIGHT OF MATERIAL ON RECORD BEFORE US. LD. AR SUBMITTED THA T THE ASSESSING OFFICER HAS ERRED IN HOLDING THAT THE ASSESSEE DID HAVE A P ERMANENT ESTABLISHMENT IN INDIA IN ACCORDANCE WITH ARTICLE 5(2)(I) OF THE IND IA-MAURITIUS DOUBLE TAXATION AVOIDANCE AGREEMENT WITHOUT CONSIDERING TH E FACT THAT THE DURATION OF THE CONTRACT WITH BRITISH GAS COMPANY W AS LESS THAN NINE ITA NO.5340/D/2011 ASSTT.YEAR: 2008-09 6 MONTHS. HE FURTHER SUBMITTED THAT THE AO ALSO ERRE D IN ASSESSING TOTAL INCOME OF THE ASSESSEE AT RS.1,45,23,18,561 AS AGAI NST NIL RETURNED INCOME OF THE ASSESSEE AND ALSO IN CALCULATING THE TOTAL T AX PAYABLE AFTER ADDING AMOUNT OF RS.7,21,97,190 WHICH WAS ALREADY PAID BY THE ASSESSEE IGNORING THE FACT THAT NO REFUND WAS MADE TO THE ASSESSEE BY THE REVENUE. THE AR ALSO CONTENDED THAT THE ASSESSING OFFICER ALSO ERRE D IN LEVYING INTEREST U/S 234B OF THE ACT WITHOUT APPRECIATING THE FACT THAT THE APPELLANT IS A NON- RESIDENT ASSESSEE AND ITS ENTIRE REVENUE RECEIPTS A RE SUBJECT TO TAX WITHHOLDING IN INDIA U/S 195 OF THE ACT AND THE ASS ESSEE IS NOT LIABLE TO PAY ADVANCE TAX. THE AR CONCLUDED HIS ARGUMENT WITH A FINAL SUBMISSION THAT THE ASSESSING OFFICER GROSSLY ERRED IN LEVYING INTE REST U/S 234D OF THE ACT IGNORING THE FACT THAT NO REFUND WAS MADE TO THE AS SESSEE BY THE REVENUE. GROUND NO. 1 & 2 8. IN ADDITION TO ABOVE SUBMISSIONS, THE AR SUBMITT ED A COPY OF THE JUDGEMENT DATED 16.09.2011 OF ITAT DELHI C BENCH PASSED IN ITA NO. 5686/D/2010 FOR AY 2007-08 I.E. PRECEDING YEAR UNDE R CONSIDERATION IN THIS APPEAL WHEREIN THE ISSUE OF PERMANENT ESTABLISHMENT WAS RESTORED DE NOVO TO THE FILE OF THE ASSESSING OFFICER FOR ASCERTAINM ENT OF THE PERIOD OF THE EXISTENCE OF THE ASSESSEE IN INDIA. THE RELEVANT O BSERVATIONS ARE BEING REPRODUCED AS UNDER: - ITA NO.5340/D/2011 ASSTT.YEAR: 2008-09 7 10. THE ONLY ISSUE NOW LEFT IS REGARDING THE INT ER-PLAY OF PARAGRAPH NOS.(1) AND (2). AS MENTIONED EARLIER, TH E SHIP REMAINED IN TERRITORIAL WATERS OF INDIA FOR SUCH LE NGTH OF TIME IN WHICH THE WORK OF ASSEMBLING THE PIPE LINES COULD BE COMPLETED. THE WORK ALSO CONTINUED FOR SUFFICIEN T LENGTH OF TIME, BUT STATEDLY NOT EXCEEDING NINE MONTHS. TH EREFORE, IF THE RATIO OF THE DECISION IN THE CASE OF FUGRO ENGINEERING BV (SUPRA) ONLY IS TAKEN INTO ACCOUNT, THIS WILL BE A FIXED PLACE OF BUSINESS UNDER PARAGRAPH N O. (1). THIS IS THE VIEW EXPRESSED BY THE LD. CIT, DR. HIS FURTHER CASE IS THAT ONCE THE TEST OF FIXED PLACE OF BUSIN ESS IS SATISFIED UNDER PARAGRAPH NO. (1), THERE IS NO NEED TO GO TO PARAGRAPH NO. 2(I). THE DECISION OF THE LD. AAR IS IN CONTRADICTION OF THE AFORESAID VIEW. IT HAS BEEN HE LD THAT THE TWO PARAGRAPHS HAVE TO BE READ TOGETHER. PARAGR APH NO. 2(I) SPECIFICALLY DEALS WITH CONSTRUCTION OR AS SEMBLY PROJECT OR SUPERVISORY ACTIVITIES IN CONNECTION THE REWITH. IF THE MATTER IS CONCLUDED UNDER PARAGRAPH NO. (1), TH IS PARAGRAPH BECOMES OTIOSE FOR THE REASON THAT ALL CONSTRUCTION OR ASSEMBLY PROJECTS WILL HAVE A FIXED PLACE OF BUSINESS. THEREFORE, IT WOULD BE DIFFICULT TO RE AD ANY RESIDUARY MEANING IN THIS PARAGRAPH. THE LD. DR HAS ALSO DISTINGUISHED THE DECISION IN THE CASE OF SUBSEA OF FSHORE LTD. (SUPRA) AS THE WORD USED IN THE TREATY AT THAT POINT WAS IN AND NOT THROUGH, THEREFORE, IT WAS HELD THAT A MOVING SHIP OPERATING ALONG WITH THE FIXED PLACE OF BUSINESS DID NOT CONSTITUTE PE. IN THIS CONNECTION, WE ARE OF THE VIEW THAT THE WORDS FIXED PLACE DO NOT REP RESENT A POINT IN SPACE BUT AN AREA IN SPACE, WHICH IS AVAIL ABLE TO THE ASSESSEE FOR ASSEMBLING THE PIPE LINES. NONETHE LESS, THE WORK DONE BY THE ASSESSEE IS OF ASSEMBLING THE PIPE LINES AND THE ISSUE IS REGARDING HARMONIOUS INTERPRETATIO N OF PARAGRAPH NOS. (1) AND (2). IN THIS SITUATION, WE T END TO AGREE WITH THE LD. AAR THAT IF WE STOP AT PARAGRAPH NO. (1), PARAGRAPH 2(I) OF THE DTAA BECOMES OTIOSE. THIS WOU LD NOT BE A PROPER WAY OF CONSTRUCTION OF THE DTAA. TH E CONTRACTING PARTIES INCLUDED WITHIN THE DEFINITION OF THE PE ONLY THOSE ASSEMBLY PROJECTS WHICH LASTED FOR MORE THAN 9 MONTHS. THIS HAS BEEN SPECIFICALLY PROVIDED IN THE TREATY. THIS LEADS TO AN INFERENCE THAT IF AN ASSEMBLY PROJ ECT LASTS ITA NO.5340/D/2011 ASSTT.YEAR: 2008-09 8 FOR LESS THAN NINE MONTHS OR NINE MONTHS, THERE WOU LD BE NO INFERENCE OF PE. IT IS HELD ACCORDINGLY. 10.1 THE LD. CIT, DR SUBMITTED THAT THE ISSUE REGAR DING THE PERIOD OF CONTINUATION OF THE ACTIVITIES HAS BE EN STATED TO BE LESS THAN NINE MONTHS BY THE ASSESSEE. ON THE BASIS OF DATA FURNISHED BY IT, THE PERIOD FALLS SHORT ONLY B Y ABOUT 20 DAYS. THE LOWER AUTHORITIES HAVE NOT EXAMINED THIS FACT AS THEY HAVE NOT CONSIDERED THE PROVISION CONTAINED IN PARAGRAPH NO. 5(2)(I). ACCORDINGLY, IT IS ARGUED TH AT IN CASE THE MAIN QUESTION IS DECIDED IN FAVOUR OF THE ASSESSEE REGARDING APPLICATION OF PARAGRAPH NO. 5(2)(I), THE EXACT PERIOD OF CONTINUATION OF ACTIVITIES WILL HAVE TO B E ASCERTAINED. THIS HAS NOT BEEN DONE BY ANY OF THE L OWER AUTHORITIES FOR THE SIMPLE REASON THAT THEY HAVE NO T GONE INTO THIS PROVISION AT ALL. ON THE OTHER HAND, THE LD. COUNSEL REFERRED TO THE SUBMISSIONS MADE BEFORE THE AO ON 16.12.2009 THAT THE PRESENCE OF THE ASSESSEE IN IND IA WAS FOR A PERIOD OF LESS THAN NINE MONTHS. HAVING CONSI DERED THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT SINC E THIS SUBMISSION HAS NOT BEEN EXAMINED BY ANY OF THE LOWE R AUTHORITY, IT WILL HAVE TO BE DONE NOW, AS THE QUES TION OF PE CRUCIALLY HINGES ON THE PERIOD OF EXISTENCE OF T HE ASSESSEE IN INDIA. ACCORDINGLY, THIS LIMITED ISSUE IS RESTORED TO THE FILE OF THE AO TO ASCERTAIN THE PER IOD OF THE EXISTENCE OF THE ASSESSEE IN INDIA AND THEREAFTER D ECIDE THE EXISTENCE OF PE AS PER OUR FINDING FURNISHED IN PAR AGRAPH NO. 10 (SUPRA). 9. IN VIEW OF ABOVE, WE ARE INCLINED TO FOLLOW THE ABOVE JUDGEMENT PASSED IN ASSESSEES OWN CASE AND HOLD THAT THIS IS SUE DESERVES TO BE DECIDED AT THE END OF THE ASSESSING OFFICER. THE LD. DR HA S ALSO SUPPORTED THE VIEW THAT THIS ISSUE IS STILL PENDING BEFORE THE ASSESSI NG OFFICER. THEREFORE, GROUNDS NO. 1 AND 2 ARE RESTORED TO THE FILE OF THE ASSESSING OFFICER TO ASCERTAIN THE PERIOD OF EXISTENCE OF THE ASSESSEE I N INDIA AS PER FINDINGS OF ITA NO.5340/D/2011 ASSTT.YEAR: 2008-09 9 COORDINATE BENCH C ITAT, DELHI IN ITA NO. 56866/D EL/2010 (SUPRA) FOR AY 2007-08. GROUND NO.3 10. THE ASSESSEES REPRESENTATIVE SUBMITTED THAT TH E ASSESSING OFFICER CALCULATED THE TAX PAYABLE AFTER ADDING AN AMOUNT O F RS.7,21,97,190 IGNORING THE FACT THAT NO REFUND WAS PAID TO THE AP PELLANT ASSESSEE. LD. DR CONTENDED THAT THIS IS A MATTER OF TAX PAYMENT ACCO UNT WITH THE REVENUE WHICH CAN BE RECTIFIED AT THE END OF ASSESSING OFFI CER. IN VIEW OF ABOVE ARGUMENT, WE HOLD THAT AS THE ISSUE OF PERMANENT ES TABLISHMENT AND TAXATION HAS BEEN RESTORED TO THE FILE OF THE ASSESSING OFFI CER, IT IS HEREBY DIRECTED THAT THE ASSESSING OFFICER WOULD CONSIDER THE ISSUE OF REFUND AT HIS END DE NOVO AFTER GIVING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO. 3 IS DECIDED IN THE MANNER AS INDICATED ABOVE. GROUND NO. 4 AND 5 11. SINCE GROUNDS NO. 1, 2 AND 3 HAVE BEEN RESTORED TO THE FILE OF ASSESSING OFFICER FOR ADJUDICATION, IT IS NOT NECES SARY TO ADJUDICATE GROUNDS NO. 4 AND 5 AS THESE ARE CONSEQUENTIAL IN NATURE. 12. IN THE RESULT, THE APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.5340/D/2011 ASSTT.YEAR: 2008-09 10 ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST,2012. SD/- SD/- ( J.S. REDDY ) (CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 31 ST AUGUST 2012 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER DEPUTY REGISTRAR