Bellsea Ltd., Cyprus V. ADIT, New Delhi

ITA 5759/DEL/2011

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7229 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 20-06-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 26-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief; Permanent establishment; Date of conversion
• Section: 5(2); 234B

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A: NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO.:-5759/DEL/2011 ASSESSMENT YEAR: 2008-09 O R D E R PER AMIT SHUKLA, J.M. THE AFORESAID APPEAL HAS BEEN FILED BY THE A SSESSEE AGAINST FINAL ASSESSMENT ORDER DATED 13.10.2011, PASSED U/S 143(3)/ 144C (13) OF THE INCOME TAX ACT, 1961, BY ASSISTANT DIRECTOR OF INCOM E TAX (INTERNATIONAL TAXATION) CIRCLE 1(1), NEW DELHI (HEREI NAFTER CALLED THE AO), IN PURSUANCE OF THE DIRECTIONS GIVEN BY THE DISP UTE RESOLUTION BELLSEA LTD. JULIA HOUSE, 3TH DERVIS STREET, CY 1066, NICOSIA, PO BOX 23589, CY-168, NICOSIA CYPRUS PAN AADCB4030D VS. ADIT INTERNATIONAL TAXATION, CIRCLE-1(1) NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI RAVI SHARMA, ADVOCATE DEPARTMENT BY : SHRI G.K. DHALL, CIT (DR) INTT. TAXATION DATE OF HEARING 13/04/2018 DATE OF PRONOUNCEMENT 06/07/2018 2 PANEL (DRP), VIDE ORDER DATED 02.08.2011 FOR ASSESS MENT YEAR 2008- 09. IN GROUNDS OF APPEAL ASSESSEE HAS RAISED FOLLOW ING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSISTANT DIRECTOR OF INCOME-TAX (INTER NATIONAL TAXATION) - 1(1) (ADIT') HAS ERRED IN PROPOSING AN D THE DISPUTE RESOLUTION PANEL (DRP') HAS FURTHER ERRED IN UPHOLD ING / CONFIRMING THE ACTION OF THE ADIT IN HOLDING THAT T HE ACTIVITIES OF THE APPELLANT CONSTITUTES A PERMANENT ESTABLISHMENT (PE') UNDER ARTICLE S(2)(G) OF THE DOUBLE TAXATION AVOIDA NCE AGREEMENT BETWEEN INDIA AND CYPRUS ('TAX TREATY') A ND THEREBY COMPUTING TAXABLE INCOME OF RS. 5,84,96,79S (BEING 10% OF GROSS RECEIPTS OF RS. 58,49,67,946) BY APPLY ING PROVISIONS OF SECTION 44BB OF THE INCOME-TAX ACT, 1 961 ('IT ACT'). 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ADIT HAS ERRED IN PROPOSING AND THE DRP HAS FURTHER ERRED IN UPHOLDING / CONFIRMING THAT THE AP PELLANT (WHO WAS A SUBCONTRACTOR) WAS RESPONSIBLE FOR MULTIFARIO US FUNCTIONS UNDER THE CONTRACT AND NOT MERE ROCK PLACEMENT FUNC TIONS BY INCORRECTLY REFERRING TO SCOPE OF WORK OF THE MAIN CONTRACTOR (ALLSEAS MARINE CONTRACTORS SA). 3. 0N THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ADIT HAS ERRED IN PROPOSING AND THE DRP HAS FURTHER ERRED IN UPHOLDING / CONFIRMING THE DATE (I.E. SEPT EMBER 2007) OF VISIT OF THE EMPLOYEE FOR COLLECTION OF DATA AND INFORMATION FOR TENDERING OF THE CONTRACT AS THE DATE OF COMMENCEME NT FOR COMPUTING THE THRESHOLD PERIOD OF THE PE INSTEAD OF APRIL 2008 WHEN THE PROJECT EXECUTION STARTED OR AT BEST 25 FE BRUARY 2008 WHEN THE VESSELS ARRIVED IN INDIA FOR THE PURPOSE O F EXECUTION OF PROJECT. 4. ON THE FACT AND CIRCUMSTANCES OF THE CASE AND IN LA W, THE LEARNED ADIT HAS ERRED IN NOT GRANTING CREDIT OF TA XES WITHHELD OF RS. 8,77,45,192. 3 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED AD IT HAS ERRED IN LEVYING INTEREST OF RS. 1,06,22,376 UNDER SECTION 234B OF THE IT ACT DESPITE THE FACT T HAT THERE WAS NO TAX PAYABLE AFTER GRANTING CREDIT OF TAX DEDUCT ED AT SOURCE AND EVEN OTHERWISE, THE APPELLANT WAS NOT LIABLE T O DISCHARGE ANY ADVANCE TAX, SINCE IT IS A NON-RESIDENT WHOSE E NTIRE INCOME IS TAX DEDUCTIBLE AT SOURCE. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED ADIT HAS ERRED IN INITIATING PENALTY PROCEE DINGS UNDER SECTION 271(1)(C) OF THE I.T. ACT. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY, BELLSEA LIMITED IS A COMPANY INCORPORATED IN CYPRUS AND IS A TAX RESI DENT OF CYPRUS. THE ASSESSEE IS MAINLY ENGAGED IN THE BUSINESS OF DR EDGING AND PIPELINE RELATED SERVICES TO OIL AND GAS INSTALLATIONS . DURING THE RELEVANT FINANCIAL YEAR, THE ASSESSEE WAS AWARDED A CONTRACT BY ALLSEAS MARINE CONTRACTORS SA (HEREIN AFTER REFERRED TO AS AMC) FOR PLACEMENT OF ROCK IN SEA BED FOR PROTECTION OF GAS PIP ELINES AND UMBILICAL OF SUBSEA STRUCTURES IN OIL AND GAS FIELD DEVELOPED AT KRISHNA GODAVARI BASIN, EAST COAST OF INDIA. UNDER TH E TERMS OF THE CONTRACT, THE WORK WAS INTENDED TO COMMENCE FROM 4 TH JANUARY, 2008 WHICH HAS BEEN MENTIONED AS EFFECTIVE DATE IN THE CONTRACT. UNDER THE SAID CONTRACT ITSELF, THE COMPLETION OF THE WORK WAS RECKONED FROM THE DATE ISSUANCE OF COMPLETION CERTIFICATE BY AMC. SIN CE THE COMPLETION CERTIFICATE WAS ISSUED IN THE MONTH OF SEP TEMBER, 2008, 4 THE COMPLETION DATE WAS THUS TAKEN AS 30 TH SEPTEMBER, 2008. THUS, ACCORDING, TO THE ASSESSEE SINCE THE CONTRACT LASTED FOR LESS THAN 12 MONTHS WHICH IS THE THRESHOLD PERIOD FOR THE ESTABLIS HMENT OF PE IN INDIA IN TERMS OF ARTICLE 5(2) (G), OF INDIA CYPRUS D TAA, THEREFORE, IT WAS CLAIMED BY THE ASSESSEE THAT NO INCOME EARNED F ROM SUCH CONTRACT CAN BE ATTRIBUTED OR TAXED IN INDIA. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE FILED A COPY OF THE CONTRACT, WORK COMPLETION CERTIFICATE, CERTIFICATE ISSUED BY CUST OM AUTHORITIES FOR CERTIFYING THE DATE OF CONVERSION AND REVERSION O F THE VESSELS, I.E., ARRIVAL AND DEPARTURE OF THE VESSELS IN INDIA. THE A SSESSEES SUBMISSION BEFORE THE AO IN THIS REGARD HAS BEEN DEAL T AT PAGES 2 AND 3 OF THE IMPUGNED ASSESSMENT ORDER. LD. AO AFTER EXAM INING THE SCOPE OF WORK, DEDUCED THAT ASSESSEE WAS CARRYING VARIOUS F UNCTIONS AS PER THE CONTRACT WHICH HAS BEEN ENUMERATED AT PAGE 4 OF TH E ASSESSMENT ORDER WHICH FOR THE SAKE OF READY REFERENCE IS REPR ODUCED HEREIN BELOW:- 5.2 UPON EXAMINATION OF SCOPE OF WORK OF THE ASSES SEE THE FOLLOWING FUNCTIONS TO BE PERFORMED BY THE ASSESSEE ARE NOTED- -DETAILED ENGINEERING, DESIGN AND ANALYSIS -PROCUREMENT OF BULK ITEMS AND MATERIAL AND EQUIPME NT -MANUFACTURE, FABRICATION AND TESTING -QA/QC -PROJECT PLANNING -INTERFACE MANAGEMENT 5 - TRANSPORTATION -PRE-ENGINEERING AND PRE-CONSTRUCTION SURVEYS -SEA-BED PREPARATION - PRE- TRENCHING - POST TRENCHING -INSTALLATION OF OFFSHORE AND ONSHORE FACILITIES -BURIAL/ENGINEERED BACKFILL - POST -INSTALLATION AND AS BUILT SURVEY -PIGGING AND HYDRO-TESTING OF ALL PIPELINES AND SUB SEA FLOW-LINE AND CHEMICAL JUMPERS - PRE COMMISSIONING OF THE SUBSIDIARY-SEA PRODUCTIO N SYSTEM. MECHANICAL COMPLETION, TESTING AND PRE-COMMISSION ING OF ALL SUBSIDIARY-SEA SYSTEM COMPONENTS AND SSIV S -COMMISSIONING ASSISTANCE 5.3 IT IS ALSO RELEVANT TO NOTE THAT ASSESSEE HAS S INGLE POINT RESPONSIBILITY TOWARDS AMONGST OTHER THINGS THE FOL LOWING- PROJECT MANAGEMENT PREPARATION OF DETAILED PROCEDURES IN ACCORDANCE WITH EQUIPMENT SUPPLIERS GUIDELINES/RECOMMENDATIONS AND OBTAIN VENDOR APPROV AL FOR PROCEDURES. ATTENDANCE AND INSPECTION DURING FAT AT COMPANY A SSIGNED SUPPLIERS. VENDOR WORKS. INTERFACE WITH COMPANY APPOINTED EQUIPMENT VENDOR S DURING ENGINEERING FOR PROVIDING INSTALLATION INPUTS. 6 OBTAIN ALL PERMITS REQUIRED TO PERFORM THE WORK U NDER THE SCOPE, EXCEPT THOSE PROVIDED BY THE PRINCIPAL. MOBILISATION AND DEMOBILIZATION OF VESSELS, SUPPO RT EQUIPMENT, MATERIALS AND MANPOWER. FROM THE ABOVE ACTIVITIES, HE CAME TO THE CONCLUSION THAT THE ASSESSEE WAS RESPONSIBLE FOR MULTIFARIOUS FUNCTIONS. THUS, FRO M TERMS OF CONTRACT AND SCOPE OF WORK IT CANNOT BE SAID THAT ROLE OF THE ASSESSEE WAS LIMITED TO MERE ROCK PLACEMENTS IN RIVER SECTIONS, SO AS TO FALL WITHIN AMBIT OF ARTICLE 5(2)(G) OF THE INDIA CYPRUS D TAA. LASTLY, HE HELD THAT EVEN IF THE ASSESSEES CONTENTION IS ACCEPTED TH AT ITS ACTIVITIES ARE COVERED U/S 5(2)(G), THEN ALSO THEY CON STITUTE A PE, BECAUSE ONE OF THE EMPLOYEE OF THE ASSESSEE MR. HARRY BELJAARS HAS COME TO INDIA AS EARLY AS ON SEPTEMBER, 2007 TO COLLE CT DATA AND INFORMATION AND DESPITE ASKING THE ASSESSEE TO PROVID E THE DETAILS OF EMPLOYEES WHO STAYED IN INDIA HAS NOT BEEN FURNISHED . HENCE, HE CONCLUDED THAT THE ASSESSEE HAS RENDERED SERVICE FOR A PERIOD OF MORE THAN 12 MONTHS AND THEREFORE, THERE IS AN INSTALLATION P E; AND ACCORDINGLY, HE COMPUTED THE INCOME U/S 44 BB, THAT I S, @ 10% OF GROSS RECEIPT OF RS. 58,49,67,946/-. 3. LD. DRP BY AND LARGE CONFIRMED THE ACTION OF TH E AO IN SO FAR AS ESTABLISHMENT OF PE IN INDIA U/S 5(2) (G) AND OBSERVE D THAT ASSESSEES ACTIVITY UNDER THE CONTRACT DOES CONSTITUTE INSTALLATION PE IN INDIA. 7 4. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE, SHRI RAVI SHARMA SUBMITTED THAT TO HOLD PE UNDER ARTICLE 5(2)(G), IT IS SINE-QUA-NON THAT THE DURATION TEST OF 12 MONTHS HAS TO BE SATISFIED. IF THE THRESHOLD PERIOD OF 12 MONTHS HAS NOT EXCEEDED, THEN INSTALLATION PE CANNOT BE ESTABLISHED. CLAUSE (G) OF ARTICLE 5(2) IS BASICALLY AN ACTIVITY BASED AND THEREFORE, WHILE EXAMINING THE TERMS OF CONTRACT THE E NTIRE FUNCTIONS AND ACTIVITIES CARRIED OUT BY THE ASSESSEE HAS TO BE S EEN, AS TO WHAT ARE THE ACTIVITIES CARRIED OUT BY THE ASSESSEE IN INDI A UNDER THE TERMS OF THE CONTRACT. DRAWING OUR ATTENTION TO VARIOUS CLAUSES OF THE CONTRACT, HE FIRST OF ALL SUBMITTED THAT ASSESSEE HAS GI VEN ITS INTENT TO AMC TO UNDERTAKE ALL THE WORKS CONCERNED WITH ROCK DUM PING AND SPREADING AND IT HAS REPRESENTED FOR CONSTRUCTION, IN STALLATION, ROCK DUMPING ETC. THE SCOPE OF FUNCTION AND WORK AS INCORP ORATED BY THE AO IN THE IMPUGNED ORDER WAS IN FACT OUTLINE AND SC OPE OF WORK WHICH AMC HAS TO UNDERTAKE FOR ITS CONTRACT WITH ITS PRINCIPAL. THE ASSESSEE WAS GIVEN RESPONSIBILITY OF ONLY PART OF THE WORK WHI CH HAS BEEN GIVEN IN SECTION 3 OF THE SCOPE OF WORK WHICH IS APPEARIN G AT PAGES 335 TO 337 OF THE CONTRACT. UNDER THE SAID SCOPE OF WORK THE A SSESSEE WAS REQUIRED TO CARRY OUT ROCK TRANSPORT AND DELIVERY WHICH INCLUDED TRANSPORTATION AND SAFETY MEASURES; SCOPE OF SUPPLY A ND CONSTRUCTION, INSTALLATION OF THE TEMPORARY FACILITIES AND SITE RESTOR ATION. ALL THE ACTIVITIES WHICH HAVE BEEN NOTED BY THE AO AND ALSO EN DORSED BY THE DRP IN FACT PERTAINED TO AMC AND NOT TO THE ASSESSEE. TH IS FACT IS 8 CLEARLY BORNE OUT FROM THE CONTRACT AND IS ALSO EVIDEN T FROM THE PAYMENT SCHEDULE AS APPEARING IN PAGE 309 OF THE CONTR ACT. THUS, THE VERY PREMISE ON WHICH AO HAS PROCEEDED TO HOLD THAT A SSESSEE IS CARRYING OUT MULTIFARIOUS FUNCTIONS SO AS TO HOLD T HAT ASSESSEES ACTIVITIES CONSTITUTE A PE IS COMPLETELY DIVORCED FROM THE FACTS AND MATERIAL ON RECORD. THE ASSESSEES ACTIVITIES UNDER THE CONTRACT IF AT ALL CAN BE SAID TO HAVE COMMENCED WOULD BE THE EFFECTIVE DATE ON WHICH THE CONTRACT HAS COMMENCED, WHICH WAS 4 TH OF JANUARY, 2008. THIS HE POINTED OUT IS CLEAR FROM CLAUSE 2 OF THE CONTRACT GIVEN AT PAGE 175. EVEN THE COMPLETION DATE HAS BEEN MENTIONED UNDER THE D EFINITION CLAUSE WHICH IS 1 ST AUGUST 2008. THUS, BOTH THE COMMENCEMENT AND COMPLETION DATE HAS BEEN SPECIFICALLY DEFINED UNDER TH E CONTRACT AND THEREFORE, THERE CANNOT BE ANY INFERENCE TO HOLD THAT THE COMMENCEMENT HAD STARTED PRIOR TO THAT DATE. HE ALSO DRE W OUR ATTENTION TO THE PAYMENT SCHEDULE AND THE BREAK UP ALONG WITH THE INVOICE DATE GIVING ACTIVITY WISE DETAILS; AND POINTE D OUT THAT, FIRST ACTIVITY OF MOBILISATION STARTED ON 23 RD FEBRUARY, 2008 AND WAS ACTUALLY COMPLETED WITH DEMOBILISATION DATE WHICH WAS 25 TH SEPTEMBER, 2008. THUS, EVEN IF THE ACTUAL ACTIVITY CO NDUCTED BY THE ASSESSEE IN TERMS OF CONTRACT IS TO BE SEEN, THEN IT WAS MUCH LESS THAN PERIOD OF 12 MONTHS. HE FURTHER DREW OUR ATTENTION TO THE OTHER CLAUSES OF THE CONTRACT LIKE PROJECT EXECUTION PLAN WHIC H WAS TO BE SUBMITTED WITHIN THREE WEEKS OF THE EFFECTIVE DATE I.E. 4 TH JANUARY, 9 2008, HENCE THE KICK OFF DATE IS POST 4 TH JANUARY, 2008. HENCE, IN NO WAY IT CAN BE INFERRED THAT ANY KIND OF ACTIVITY QUA T HE INSTALLATION CONTRACT HAD COMMENCED BEFORE THE 4 TH JANUARY, 2008. IN SO FAR AS THE ALLEGATION OF THE AO THAT ONE OF THE EMPLOYEE OF THE ASS ESSEE HAD VISITED INDIA IN SEPTEMBER, 2007, HE SUBMITTED THAT HE HAD VISITED INDIA PURELY FOR PREPARATORY WORK LIKE COLLECTING OF DATA AND INFORMATION NECESSARY FOR TENDERING PURPOSES AND NOT FOR ANY KIND OF INSTALLATION ACTIVITY. SUCH KIND OF ACTIVITIES MUCH P RIOR TO AWARDING OF THE CONTRACT CANNOT BE TREATED AS PART OF INSTALLATION ACTI VITY AS STIPULATED IN ARTICLE 5(2) (G). IN SUPPORT OF HIS CONTEN TION, HE STRONGLY RELIED UPON THE JUDGMENT OF THE HONBLE DELHI HIGH CO URT IN THE CASE OF NATIONAL PETROLEUM CONSTRUCTION VS. DIRECTOR OF INC OME TAX, REPORTED IN 386 ITR 648 , WHEREIN THE HONBLE JURISDICTIONAL HIGH COURT HAS CATEGORICALLY HELD THAT ASSEMBLY PROJECT OR I NSTALLATION PE CAN ONLY BE CONSTRUED AS A FIXED PLACE OF BUSINESS ONLY WHEN AN ENTERPRISE COMMENCES ITS ACTIVITY AT THE PROJECT SITE. AN ACTIVITY WHICH MAY BE RELATED OR INCIDENTAL TO THE PROJECT BUT WHICH IS NOT CARRIED OUT AT THE SITE IN THE SOURCE COMPANY WOULD NOT CONSTITUTE A S PE. HERE IN THE PRESENT CASE, THE RATIO LAID DOWN BY THE HONBLE HI GH COURT IF APPLIED, THEN UNDER NO CIRCUMSTANCES IT CAN BE HELD TH AT THERE IS ANY KIND OF PE OF ASSESSEE IN INDIA. 10 5. ON THE OTHER HAND LD. CIT (DR), FIRST OF ALL EM PHATICALLY RELIED UPON THE ASSESSMENT ORDER AND DIRECTIONS OF THE DRP. H E FURTHER SUBMITTED THAT THE CONTRACT ITSELF INDICATES THAT THE ASSE SSEES PERSONNEL WERE REQUIRED TO VISIT INDIA AND ASSESSEES EMPLOYEE DID VISIT INDIA IN THE MONTH OF SEPTEMBER, 2007 AND THE A CTIVITY CONTINUED MUCH BEYOND SEPTEMBER 2008. THAT IS, THE ASSESSEE WA S INVOLVED IN THE INSTALLATION PROJECT MUCH BEFORE THE EFFECTIVE DATE OF CONTRACT (4 TH JAN, 2008) FOR THE PURPOSE OF CARRYING OUT THE ACTIVI TIES IN RELATION TO THE CONTRACT. THE DATE OF ARRIVING OF VESSEL/BARGE SHOU LD NOT BE TAKEN AS A DATE OF COMMENCEMENT OF THE ACTIVITIES FOR THE P URPOSE OF COMPUTING THE DURATION IN ARTICLE 5(2) (G), BECAUSE TH E ENTIRE ACTIVITY QUA THE CONTRACT HAS TO BE TAKEN INTO ACCOUNT. IN ORDER TO PROVE THIS POINT, HE SPECIFICALLY DREW OUR ATTENTION TO VARIOUS C LAUSES OF THE CONTRACT AND HIGHLIGHTED THE POINTS IN HIS WRITTEN SUBMIS SION, WHICH FOR THE SAKE OF READY REFERENCE IS REPRODUCED HEREIN BELOW:- 1. PB PAGE 165 POINT (E): '(E) THE CONTRACTOR HAS FURTHER REPRESENTED TO THE COMPANY THAT THE CONTRACTOR HAS MADE ITSELF AWARE OF THE MARINE CONDITIONS, TECHNICAL FEASIBILITY AND THE RU LES AND REGULATIONS APPLICABLE TO THE CARRYING OUT OF AND C OMPLETION OF THE WORKS (AS SUCH TERM IS DEFINED BELOW) AND, ON THIS BASIS, THE CONTRACTOR HAS SATISFIED ITSELF THAT IT HAS THE REQ UISITE EXPERTISE, CAPABILITY, AVAILABILITY OF MANPOWER AND INFRASTRUC TURE (WITH CAPACITY TO AUGMENT THESE) AND IS WILLING TO CARRY OUT AND COMPLETE THE WORKS BY THE COMPLETION DATE (AS SUCH TERM IS 11 DEFINED BELOW) IN ACCORDANCE WITH THE CONTRACT.' (E MPHASIS PROVIDED) 2. PB PAGE 194: 'CLAUSE-8.3. THE CONTRACTOR CONFIRM S THAT IT HAS, PRIOR TO THE EFFECTIVE DATE (AND IN ADDITION TO ITS OBLIGATIONS UNDER CLAUSE 8.2) COMPLETED, AND KEPT UPDATED, A FULL REV IEW, ON AN ONGOING BASIS UP TO THE COMPLETION DATE ...'(EMPHAS IS PROVIDED). THUS, ACTIVITIES CARRIED ON PRIOR TO THE CONTRACT D ATE SHOULD BE VIEWED AS AN EXTENSION/CONTINUATION (ONGOING BASIS) RATHER THAN EXCLUSION FOR THE PURPOSE OF COMPUTATION OF THE DUR ATION OF ACTIVITIES WITHIN THE MEANING OF ART. 5(2)(G) OF DT AA. 3. PB PAGE 195: 'CLAUSE-8.4(A) 'ANY WORKS NOT EXPRE SSLY REFERRED TO IN THIS CONTRACT BUT INHERENTLY NECESSARY TO COMPLE TE THE WORKS SHALL BE CARRIED OUT BY THE CONTRACTOR AND SHALL BE DEEMED TO BE INCLUDED IN THE BASIC CONTRACT PRICE.' (EMPHASIS PR OVIDED) 4. PB PAGE 330: 'THE SCOPE OF WORK SHALL ALSO I NCLUDE PRE- ENGINEERING SURVEY AND SOIL INVESTIGATION STUDIES A S DEEMED NECESSARY BY CONTRACTOR TO SUPPLEMENT COMPANY PROVI DED DATA.' (EMPHASIS PROVIDED) 5. PB PAGE 358: THAT THE ASSESSEE HAD MADE EXTENSIV E STUDY AND SURVEY OF THE SITE MUCH BEFORE THE EFFECTIVE DATE O F THE CONTRACT IS ALSO CLEAR FROM THE FACT THAT THE CONTRACT ITSELF R EQUIRES THAT FOLLOWING ARE TO BE PROVIDED ON DAY 'ZERO'(EMPHASIS PROVIDED) SINCE THE EFFECTIVE DATE: A. MDR AND SCHEDULE B. EXECUTION PLAN C. CONTRACT SCHEDULE THE HIGHLIGHTED/UNDERLINED PORTIONS INDICATE THAT T HE ASSESSEE WAS REQUIRED TO, AND HAD MADE, EXTENDED STUDY OF, A ND CONSEQUENTLY STAY NEAR, THE SITE MUCH BEFORE THE EF FECTIVE DATE. 12 THIS IS WHAT THE AO HAS EMPHASIZED AND FOR THIS THE DETAILS OF THE VISIT AND STAY OF THE PROJECT MANAGER MR. H. BELJAA RS (PB PAGE 279) WAS CALLED FOR. UNFORTUNATELY, ALTHOUGH MR. BE LJAARS HAD BEEN TO INDIA SINCE AS EARLY AS SEPTEMBER 2007, (RE FER DRP PAGE- 4, PARA-3.2.2), THE ASSESSEE HAS NOT PROVIDED THE R ELEVANT DETAILS (STAY, PASSPORT / VISA STAMPINGS). 6. PB PAGE 295 - 295: THE SCHEDULE 13 'RESPONSIBILI TY MATRIX' OF THE ASSESSEE (CONTRACTOR) AS WELL AS THAT OF THE 'COMPA NY'. THE RESPONSIBILITY OF THE ASSESSEE INCLUDES: A) TRANSPORTATION ENGINEERING AND CONSTRUCTION ENGI NEERING (POINTS 1.5 AND 1.7). THIS GOES TO SHOW THAT THE WO RK IS MUCH MORE INTRICATE THAN MERE DUMPING / FILLING OF ROCKS. THE SITE IS UNDER WATER OR AT LEAST OFFSHORE. THESE WOULD HAVE REQUIRED THE ASSESSEE TO BE AT THE SITE TO STU DY AND PREPARE FOR EVEN ACCEPTING / SIGNING THE CONTRACT. B) FABRICATION (POINT 3): THIS REQUIRES ONSHORE ACT IVITIES. C) SURVEYS (POINT 5.10): ALSO INCLUDES PRE-INSTALLA TION SURVEY. THIS INDICATES THAT THE WORK WAS NOT AS SIMPLE AS M ADE OUT TO BE. D) POINT 7.3: ESTABLISHING ONSHORE STORAGE / COATIN G / FABRICATION / SUPPLY BASES TO SUPPORT CONSTRUCTION OPERATIONS. THIS SHOWS ONSHORE 'PERMANENT' PLACE OF WORK. E) POINT 7.5: ASSESSEE HAD TO 'OBTAIN ALL PERMITS A ND AUTHORISATIONS.' 8. AUTHORIZATIONS FROM REGULATORY AUTHORITIES: PB P AGE 363 SECTION 12.1 INDICATES THAT THE ASSESSEE HAS TO OBTAIN AUTH ORIZATIONS FROM ABOUT 11 (ELEVEN) REGULATORY AUTHORITIES. THIS WOUL D CERTAINLY HAVE TAKEN IMMENSE PRIOR WORK AS ENVISAGED BY THE A O (PARA 6). 13 9. COMPLIANCE WITH LAWS: PB PAGE 364 SECTION 12.5.1 REQUIRES THE CONTRACTOR (ASSESSEE) TO 'MAKE ALL ARRANGEMENTS FOR NECESSARY COMPLIANCE' WITH 29 LAWS. THIS WOULD HAVE CERTAINLY REQUIRED DEEP ON SITE INVOLVEMENT AND STUDY MUCH BEFORE THE EFFECTIVE DATE AS ENVISAGED BY THE AO (PARA 6 THEREOF). THIS IS AP ART FROM THE VARIOUS STUDIES REQUIRED TO BE DONE (PB 341- 345). 10. ONSHORE OFFICE AT SITE / ONSHORE BASE / OFFSHOR E OFFICE AT SITE: PB PAGES 398 - 401 - THE ASSESSEE (CONTRACTOR) IS R EQUIRED TO MAINTAIN (I) ONSHORE OFFICE AT SITE (II) ONSHORE BA SE (III) OFFSHORE OFFICE AT SITE. THESE REQUIREMENTS ARE STATED IN QU ITE DETAIL. IT IS NOTABLE THAT EVEN AN OFFICE IS TO BE MAINTAINED ON THE SHIP / VESSEL ALONG WITH NECESSARY TELECOMMUNICATION AND COURIER FACILITIES (APART FROM REGULAR CABINS ETC.). COMPLETION OF WORK 12. PB PAGE-221: 'CLAUSE 17.2 (B). THE COMPANY SHAL L, WITHIN 30 DAYS OF THE RECEIPT OF CONTRACTOR'S APPLICATION EIT HER: 1) SIGN THE COMPLETION CERTIFICATE AND LISTING ON A PUNCH LIST ALL ITEMS OF THE WORKS TO BE RECTIFIED OR COMPLETED... . 2) REJECT THE APPLICATION IN THE LIGHT OF ABOVE, IF THE CONTENTION OF THE ASS ESSEE IS ACCEPTED, THERE WOULD BE 3 DATES OF COMPLETION OF THE ACTIVITIES, I .E.,; A. 25 TH SEPTEMBER 2008 (I.E. DATE OF DEPARTURE OF THE LAST VESSEL/BARGE- PAGE-36 OF PB-1) B. 30 TH SEPTEMBER 2008 (I.E. THE DATE OF COMPLETION AS PER COMPLETION CERTIFICATE- PAGE 49 OF PB-L) C. 16TH NOVEMBER 2008 (I.E. 30 DAYS BEFORE THE DATE OF SIGNING OF COMPLETION CERTIFICATE AS PER CL. 17.2 (B) OF CO NTRACT AS REFERRED TO ABOVE) 14 13. PB PAGE 222: 'CLAUSE 17.7 FINAL COMPLETION - TH E CONTRACTOR SHALL ONLY BE ENTITLED TO APPLY FOR THE FINAL COMPLETION CERTIFICATE ONCE THE FOLLOWING CONDITIONS HAVE BEEN SATISFIED: A. THE COMPANY HAS ISSUED THE COMPLETION CERTIFICAT E PURSUANT TO CLAUSE 17.3 AND ANY PUNCH LIST ITEMS LISTED......HAVE BEEN COMPLETED..... B. THE CONTRACTOR HAS PROVIDED THE AS-BUILT DRAWIN GS........ C. .......... D. THE CONTRACTOR IS IN COMPLIANCE WITH ALL OF ITS OTHER OBLIGATIONS......(EMPHASIS PROVIDED) SEEN AGAINST THE ABOVE BACKDROP, THE DATE OF COMPLE TION OF ACTIVITIES IS NOT THE DATE OF COMPLETION OR THE DAT E OF ISSUANCE OF A CERTIFICATE OF COMPLETION AS PER CLAUSE 17(2) OR CL AUSE 17(3) OF THE CONTRACT, BUT RATHER THE FINAL COMPLETION CERTIFICA TE ISSUED UNDER CLAUSE-17(8) (PB PAGE-223) OF THE CONTRACT. THE COM PLETION CERTIFICATE PRODUCED BY THE ASSESSEE (PAGE-49 OF PB -1) IS ISSUED UNDER CLAUSES 17.2 AND 17.3 ONLY AND NOT UNDER CLAU SE 17.8 AS PROVIDED IN THE CONTRACT AND HENCE CANNOT BE TAKEN AS THE DATE OF THE COMPLETION OF THE ACTIVITIES FOR THE PURPOSE OF COMPUTATION OF THE DURATION OF ACTIVITIES WITHIN THE MEANING OF AR T. 5(2) (G) OF DTAA. 6. THUS, HE SUBMITTED THAT THE DATE OF COMMENCEMEN T AND THE DATE OF COMPLETION CANNOT BE TAKEN FROM THE 4 TH JANUARY, 2008 TO 25/30 TH SEPTEMBER, 2008, BECAUSE FOR THE REASONS STATED ABO VE BY HIM. ACCORDINGLY, HE CONCLUDED THAT HERE IN THIS CASE THE THRESHOLD PERIOD OF 12 MONTHS HAD CROSSED AND THEREFORE, THERE IS PE IN TERMS OF (5)(2)(G). 15 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS AS WELL AS MAT ERIAL REFERRED TO BEFORE US AT THE TIME OF HEARING. THE ASSESSEE IS A CY PRUS BASED COMPANY WHICH WAS AWARDED CONTRACT BY ANOTHER FOREIGN ENTITY ALLSEAS MARINE CONTRACTORS S.A, (AMC) FOR PLACEMENT OF ROCK IN SEABED FOR LAYING OF GAS PIPELINES AND PROVIDING UMBILICAL FOR SUB STRUCTURES IN OIL AND GAS FIELD DEVELOPED AT KRISHNA GODAVARI B ASIN. THE AMC WAS AWARDED A CONTRACT FROM THE RELIANCE GROUP AND NIKO RE SOURCES FOR EXTRACTION OF GAS AND FOR LAYING OF GAS PIPELINE. IN ORDER TO CARRY OUT ITS CONTRACT WORK AMC HAS GIVEN A CONTRACT TO THE ASSESSEE C OMPANY FOR THE PLACEMENT OF ROCK IN THE OIL AND GAS FIELD. THE SCOPE OF WORK OF AMC HAS BEEN ELABORATED AT PAGE 329 OF THE CONTRACT WH ICH HAS BEEN NOTED BY THE AO AND ALSO INCORPORATED BY US IN THE FORE GOING PARAGRAPH 2. HOWEVER, THE AO HAS INFERRED THAT THIS SCO PE OF WORK IS TO BE DONE BY THE ASSESSEE WHICH IS NOT CORRECT, BECA USE THE ASSESSEES ACTIVITY UNDER THE SCOPE OF WORK HAS BEE N GIVEN IN SECTION 3 OF THE CONTACT WHICH HAS BEEN ELABORATED AT PAGE 3 35 OF THE CONTRACT WHICH READS AS UNDER:- 3. DETAILED SCOPE OF WORK THIS SECTION PROVIDES MORE DETAIL REGARDING THE CON TRACTORS SCOPE OF WORK AND PROVIDES A DETAILED DESCRIPTION FOR THE WORKS TO BE EXECUTED UNDER THIS CONTRACT. 3.1 ROCK TRANSPORT AND DELIVERY 16 DETAILED ACTIVITIES SHALL BE PERFORMED FOR ROCK PRO TECTION PLACEMENT THROUGH ROCK DUMPING. 3.1. 1 TRANSPORTATION THE ROCK MATERIALS WILL BE FREE ISSUED BY COMPANY / PRINCIPAL. THE CONTRACTOR SHALL UNDERTAKE SUFFICIENT PRECAUTIO NARY MEASURES REGARDING THE TRANSPORT OF ROCK MATERIALS, TO DEMON STRATE THAT ALL MATERIALS CAN BE TRANSPORTED SAFELY OVER THE SELECT ED ROUTE TO THE INSTALLATION SITE AND PLACED AS PER REQUIREMENTS. CONTRACTOR SHALL BE RESPONSIBLE FOR OBTAINING APPRO VAL OF THE SEA FASTENING FROM THE MARINE WARRANTY SURVEYOR AND COM PANY DURING MOBILIZATION AND DEMOBILISATION. 3.1.2 SAFETY MEASURES PROVIDE UNLOADING PROCEDURES AND MANUALS FOR EACH O PERATION COVERING VESSEL PREPARATION, LOAD OUT, AND TRANSPOR TATION. THESE PROCEDURES SHALL INCLUDE BUT NOT BE LIMITED TO: - UNLOADING PROCEDURES -DETAILS OF PROPOSED EQUIPMENT - ANCHOR HANDLING AND ANCHOR PATTERN ALL PROCEDURES SHALL BE SUBJECT TO COMPANY AND CVA REVIEW AND APPROVAL, PERFORM HAZOP /HAZID AND QRA ACTIVITIES RELEVANT TO ROCK DUMPING WORK SCOPE. ATTEND OTHER HAZOP AND QRA WORK SHOPS AS REQUIRED BY COMPANY. 3.2 SCOPE OF SUPPLY COMPANY WILL PROVIDE FIM VIA ITS OTHER CONTRACTORS, AS DETAILED IN SECTION 16. WITH THE EXCEPTION OF FIM, CONTRACTOR S HALL PROCURE ALL 17 MATERIALS INCLUDING TEMPORARY, PERMANENT AND CONSUM ABLE MATERIALS REQUIRED FOR EXECUTION OF THE WORK. THESE SHALL INCLUDE; TEMPORARY INSTALLATION AIDS CONSUMABLES AND SPARES FOR INSTALLATION ALL EQUIPMENT AND MARINE SPREAD AS REQUIRED CONTINGENCY EQUIPMENTS ALL FIRST AID AND SAFETY SUPPLIES SEA FASTENING MATERIALS COMPLETE SURVEY AND POSITIONING EQUIPMENT ANY OTHER EQUIPMENT, MATERIAL, SUPPLIES, SERVICES N OT SPECIFICALLY MENTIONED HEREWITH BUT REQUIRED TO CARRY OUT THE SC OPE OF WORK. CONTRACTOR SHALL CARRY OUT EXPEDITING, INSPECTION, SURVEILLANCE OF VENDOR WORKS WHENEVER REQUIRED TO ENSURE THAT THE P URCHASED EQUIPMENT AND ITEMS WILL MEET ALL QUALITY REQUIREME NTS AND WILL BE DELIVERED TO MEET THE PROJECT SCHEDULE. 3.3 CONSTRUCTION AND INSTALLATION OF THE TEMPORARY FACILITIES CONTRACTOR SHALL ARRANGE AND INSTALL ALL THE TEMPOR ARY FACILITIES TO ENABLE THE WORKS. ALL THE TEMPORARY FACILITIES SHAL L BE REMOVED AND THE WORK SITE SHALL BE RESTORED TO ITS ORIGINAL CONDITION. ROCK DUMPING ACTIVITIES INCLUDE: CONTRACTOR IS RESPONSIBLE FOR THE TRANSPORTING AND PLACING OF A MAXIMUM OF 1,00,000 TE OF ROCK MATERIALS WHICH WILL BE DELIVERED FOB BY DREDGING CONTRACTOR AT LFP JETTY1 (CURRENT SCOPE OF WORK IS BASED ON A 1,000,000 TE ROCK BACKFILL. THE OPTIM AL METHODOLOGY AND AMOUNT IS CURRENTLY REVIEWED.) 18 THE ROCK PROTECTION AS PER THE BASE SCOPE REQUIRE MENTS WILL BE PLACED BETWEEN LFP AND KP 17.4 3.4 NOT USED 3.5 NOT USED 3.6 NOT USED 3.7 SITE RESTORATION UPON COMPLETION OF THE WORK, CONTRACTOR SHALL REMOV E FROM THE SITE ALL TEMPORARY WORK, SCRAP, SURPLUS MATERIALS, CONST RUCTION FACILITIES AND EQUIPMENT PROVIDED BY CONTRACTOR, AN D SHALL REMOVE DEBRIS AND GARBAGE. ANY SUCH MATERIAL DUMPED INTO T HE SEA SHALL BE SUBJECT TO RECOVERY AT CONTRACTOR EXPENSE. 8. FROM THE ABOVE SCOPE OF WORK, IT CAN BE DEDUCED T HAT IT IS PURELY WITH REGARD TO ROCK TRANSPORT AND DELIVERY, SU PPLY OF MATERIAL AND EQUIPMENT, CONSTRUCTION, INSTALLATION OF THE TEMPORA RY FACILITIES, ROCK DUMPING ACTIVITIES AND SITE RESTORATION. ALL OTHER A CTIVITIES ENUMERATED BY THE AO QUA THE ASSESSEE IS NOT CORRECT. HERE THE MOOT QUESTION IS, WHETHER THE SCOPE OF WORK UNDER THE CONTRAC T AND THE ACTIVITIES CARRIED OUT BY THE ASSESSEE IN RESPECT OF THE AFORESAID WORK HAD CROSSED THE THRESHOLD PERIOD OF 12 MONTHS GIVEN IN ARTICLE 5(2)(G) OF INDIA-CYPRUS DTAA. FOR THE SAKE OF READY REFERENC E ARTICLE 5(2) (G) READS AS UNDER:- A BUILDING SITE, CONSTRUCTION, ASSEMBLY OR INSTALLATION PROJECT OR SUPERVISORY ACTIVITIES IN CONNECTION THEREWIT H, BUT ONLY WHERE SUCH SITE, PROJECT OR ACTIVITIES CONTINUE S FOR A PERIOD OF MORE THAN TWELVE MONTHS. 19 9. ERGO, TO CONSTITUTE A PERMANENT ESTABLISHMENT UND ER THIS CLAUSE, IT IS SINE QUA NON THAT THE ACTIVITIES DEFINED THEREIN SHOULD BE CARRIED OUT/OR IS CONTINUED FOR A PERIOD OF MORE THAN 12 MONTHS. IN OTHER WORDS, IF THIS THRESHOLD PERIOD IS NOT CROSSED THE N SUCH AN ACTIVITY CANNOT CONSTITUTE A PE IN INDIA. THE REVENUES CASE IS THAT; FIRSTLY , ONE OF THE EMPLOYEE OF THE ASSESSEE COMPANY HAD VIS ITED INDIA IN SEPTEMBER, 2007 AND THEREAFTER ACTIVITIES OF THE AS SESSEE HAD STARTED FROM SEPTEMBER, 2007; SECONDLY , PRIOR TO THE EFFECTIVE DATE OF 4 TH JAN 2008, A FULL REVIEW WAS UNDERTAKEN BEFORE ENTER ING INTO CONTRACT AND THUS, THE ACTIVITIES CARRIED OUT PRIOR TO THE CONTRACT DATE SHOULD BE TREATED AS EXTENSION/CONTINUATION OF THE IN STALLATION ACTIVITY; THIRDLY, THERE WAS PRE-ENGINEERING SURVEY AN D SOIL INVESTIGATION STUDIES UNDER THE SCOPE OF WORK FOR WH ICH ASSESSEE HAS MADE SURVEYS MUCH BEFORE THE EFFECTIVE DATE WHICH IS 4 TH JANUARY,2008; FOURTHLY , THE ASSESSEE HAS NOT PROVIDED ANY RELEVANT DETAILS OF ARRIVALS AND STAY ETC., OF THE EMPLOYEES VIS ITING INDIA PRIOR TO THE DATE OF CONTRACT; FIFTHLY , THE RESPONSIBILITY MATRIX AS APPEARING IN SCHEDULE 13 SHOWS THAT ASSESSEE WAS REQUIRED TO CARRY OUT OTHER VARIOUS ACTIVITIES WHICH REQUIRED PRE INSTALLATION ACTI VITIES AND ALSO TO OBTAIN VARIOUS PERMITS AND AUTHORISATIONS WHICH HAS ALS O BEEN TAKEN AS PART OF INSTALLATION ACTIVITY ITSELF; AND LASTLY , THE COMPLETION CERTIFICATE AS GIVEN BY THE ASSESSEE DOES NOT REFLECT TH E FINAL COMPLETION, BECAUSE THERE WAS A CONDITION THAT FINAL C OMPLETION 20 CERTIFICATE WOULD BE GIVEN ONCE VARIOUS CONDITIONS HA VE BEEN SATISFIED AND TILL THE FINAL COMPLETION CERTIFICATE IS ISSUED THE ACTIVITY OF THE PROJECT HAS TO BE CONSTRUED AS CONTINUING. 10. FROM THE MATERIAL PLACED ON RECORD, WE FIND THAT PRIOR TO THE ENTERING OF THE CONTRACT, ONE OF THE EMPLOYEES OF THE A SSESSEE COMPANY, MR HARRY BELJAARS HAD VISITED INDIA SOMETIM E IN SEPTEMBER, 2007 FOR THE PURPOSE OF COLLECTING DATA AND INFORMATION NECESSARY FOR TENDERING PURPOSE AND TO BID FOR THE CONTRACT. BEFORE ENTERING INTO CONTRACT WITH AMC SUCH PREPARATORY WORK LIKE PRE-SURVEY ENGINEERING, INVESTIGATION OF SITE, ETC., FOR TENDERING PURPOSE WI THOUT ACTUALLY ENTERING INTO THE CONTRACT AND INSTALLATION OF PROJECT CAN NOT BE HELD THAT THE ACTIVITY QUA THE INSTALLATION PROJECT HAS STARTED . HERE ONE IMPORTANT FACT TO ESTABLISH THE THRESHOLD PERIOD PRIOR TO EFFECTIVE DATE PROVIDED IN THE CONTRACT, HAS NEITHER BEEN BROUGHT BY T HE REVENUE NOR IS BORNE OUT FROM THE RECORDS, THAT THE ASSESSEE HAS INSTALLED ANY KIND OF PROJECT OFFICE OR DEVELOPED A SITE BEFORE ENTERIN G INTO THE CONTRACT WITH THE AMC FOR CARRYING OUT ANY PREPARATORY WORK. A UXILIARY AND PREPARATORY ACTIVITY, PURELY FOR TENDERING PURPOSE BE FORE ENTERING OF THE CONTRACT AND WITHOUT CARRYING OUT ANY ACTIVITY OF ECON OMIC SUBSTANCE OR ACTIVE WORK QUA THAT PROJECT CANNOT BE CONSTRUED AS CARRYING OUT ANY ACTIVITY OF INSTALLATION OR CONSTRUCTIO N. CLAUSE (G) OF ARTICLE 5(2) OSTENSIBLY REFERS TO ACTIVITY BASED PE, BE CAUSE THE MAIN 21 EMPHASIS IS ON WHERE SUCH SITE PROJECT OR ACTIVITY CONTINUES FOR A PERIOD OF MORE THAN 12 MONTHS. THE DURATION OF 12 MONTHS PER SE IS ACTIVITY SPECIFIC QUA THE SITE, CONSTRUCTION, ASSEMBLY OR INSTALLATION PROJECT. IF THE CONTRACT WOULD NOT HAVE BEEN AWARDED, TH EN ANY KIND OF PREPARATORY WORK FOR TENDERING OF CONTRACT CANNOT BE RE CKONED FOR CARRYING OUT ANY ACTIVITY AS STIPULATED IN THIS CLAUSE. HENCE, IN THIS CASE ALL SUCH PREPARATORY WORK FOR TENDERING PURPOSE BEFORE ENTERING INTO CONTRACT CANNOT BE COUNTED WHILE CALCULATING THE THR ESHOLD PERIOD. SITUATION WOULD BE DIFFERENT IF AFTER THE CON TRACT/WORK HAS BEEN AWARDED/ASSIGNED AND THEN IF ANY KIND OF ACTIVE WORK OF PREPARATORY OR AUXILIARY NATURE IS CARRIED OUT, IT CO ULD BE COUNTED FOR DETERMINING THE TIME PERIOD. 11. THIS PRINCIPLE HAS BEEN WELL DISCUSSED BY T HE HONBLE DELHI HIGH COURT IN THE CASE OF NATIONAL PETROLEUM CONSTRUCTION COMPANY (SUPRA), WHEREIN THE HONBLE HIGH COURT WAS ANALYSIN G SIMILAR TERMINOLOGY APPEARING IN ARTICLE 5(2) (H) OF INDO-UAE TREATY WHEREIN SIMILAR PHRASES HAVE BEEN USED. THE RELEVAN T OBSERVATION AND RATIO LAID DOWN BY THE HONBLE HIGH COURT READS AS UND ER:- 33. IN TERMS OF CLAUSE (H) OF PARAGRAPH 2 OF ARTIC LE 5 OF THE DT AA, 'A BUILDING SITE OR CONSTRUCTION OR ASSEMBLY PR OJECT OR SUPERVISORY ACTIVITIES IN CONNECTION THEREWITH' WOU LD ALSO CONSTITUTE A PE OF AN ENTERPRISE SUBJECT TO THAT SI TE, PROJECT OR ACTIVITY CONTINUING FOR A PERIOD OF AT LEAST NINE M ONTHS. CLEARLY, THE 22 PURPOSE OF THE SAID CLAUSE IS ALSO TO INCLUDE A BUI LDING SITE OR A CONSTRUCTION OR AN ASSEMBLY PROJECT AS A PE BY ITSE LF. ON A PLAIN READING, A PE CONSTITUTED BY A BUILDING SITE OR A CONSTRUCTION OR AN ASSEMBLY PROJECT, WOULD COMMENCE O N THE COMMENCEMENT OF ACTIVITIES RELATING TO THE PROJECT OR SITE. THE SAID CLAUSE IS ALSO TO BE READ HARMONIOUSLY WI TH PARAGRAPH 1 OF ARTICLE 5 OF THE DT AA WHICH NECESSA RILY ENTAILS A FIXED PLACE OF BUSINESS FROM WHICH THE BUSINESS OF AN ENTERPRISE IS CARRIED ON. THUS, A BUILDING SITE OR AN ASSEMBLY PROJECT COULD BE CONSTRUED AS A FIXED PLACE OF BUSINESS ONLY W HEN AN ENTERPRISE COMMENCES ITS ACTIVITY AT THE PROJECT SITE . AN ACTIVITY WHICH MAY BE RELATED OR INCIDENTAL TO THE PROJEC T BUT WHICH IS NOT CARRIED OUT AT THE SITE IN THE SOURC E COUNTRY WOULD CLEARLY NOT BE CONSTRUED AS A PE AS IT WOULD NOT COMPLY WITH THE ESSENTIAL CONDITIONS AS STATED IN PARAGRAPH 1 OF ARTICLE 5 OF THE DTAA. IT IS NECESSARY TO UNDERSTAND THAT A BUILDING SITE OR A CONSTRUCTION A SSEMBLY PROJECT DOES NOT NECESSARILY REQUIRE AN ATTENDANT OFFICE; T HE SITE OR THE ATTENDANT OFFICE IN RESPECT OF THE SITE/PROJECT ITS ELF WOULD CONSTITUTE A FIXED PLACE OF BUSINESS ONCE AN ASSESS EE COMMENCES ITS WORK AT SITE. THUS, FOR CLAUSE (H) OF PARAGRAPH 2 OF ARTICLE 5 TO BE APPLICABLE, IT IS ESSENTIAL THAT THE WORK AT S ITE OR THE PROJECT COMMENCES - IT IS NOT RELEVANT WHETHER T HE WORK RELATES TO PLANNING OR ACTUAL EXECUTION OF CONSTRUCTION WORKS OR ASSEMBLY ACTIVITIES. PREPARATORY WORK AT SITE SUCH AS CONSTRUCTION OF A SITE OFFICE, A PLANNING OFFICE O R PREPARING THE SITE ITSELF WOULD ALSO BE COUNTED TOWAR DS THE MINIMUM DURATION OF A PE UNDER ARTICLE (2)(H) OF DTAA. IN A GIVEN CASE, ESTABLISHMENT OF AN OFFICE OR ANY WORK WHICH DIRECTLY SERVES THE OPERATIONS AT SITE MAY ALSO BE CONSTRUED AS A PART OF 23 THE BUILDING SITE, OR CONSTRUCTION OR ASSEMBLY PROJ ECT. THE ESSENCE OF A PE UNDER ARTICLE 5(2) (H) IS A BUILDING SITE OR A CONSTRUCTION OR ASSEMBLY PROJECT AND THE ACTIVITIES OF A N ENTERPRISE RELATING THERETO IN THE SOURCE COUNTRY. 34. AT THIS STAGE, IT WOULD ALSO BE RELEVANT TO REF ER TO THE FOLLOWING EXTRACT FROM THE COMMENTARY BY KLAUS VOGEL ON 'DOUB LE TAXATION CONVENTIONS, THIRD EDITION':- 'THE MINIMUM PERIOD BEGINS WHEN THE ENTERPRISE STAR TS TO PERFORM BUSINESS ACTIVITIES ON THE SPOT IN CONNECTI ON WITH A BUILDING SITE OR CONSTRUCTION OR ASSEMBLY PROJECT. THE TERM 'ON THE SPOT' SHOULD, IN THESE INSTANCES, NOT NECESSARILY B E TAKEN TO DENOTE THE ACTUAL PLACE WHERE THE BUILDING WORKS, E TC., ARE TO BE ACCOMPLISHED, FOR INSTANCE, IN CASES WHERE A PLANNI NG OFFICE FOR THE CONSTRUCTION WORK IS INSTALLED AT SOME OTHER PL ACE. IN SUCH AN EVENT, PREPARATORY AND ANCILLARY WORK IS ALREADY CO NNECTED WITH THE BUILDING WORKS PROPER, PROVED THE FORMER DIRECT LY SERVE THE OPERATION OF THE BUILDING SITE (LIKEWISE OST BMF 3 SWI 19 (1993): DTC AUSTRIA; USSR). PROVIDING FOR SUCH AN EARLY BEG INNING OF THE MINIMUM PERIOD IS THE BEST WAY OF TAKING THE TECHNI CAL AND ECONOMIC NATURE OF BUILDING WORKS INTO ACCOUNT AND IT ALSO AVOIDS THE PRACTICAL DIFFICULTIES OF HAVING TO DRAW THE LI NE BETWEEN ANCILLARY ACTIVITIES AND 'BUILDING WORKS PROPER .. ....... 35. THE AFORESAID PASSAGE ALSO CLEARLY INDICATES TH AT THE DURATION OF A PERMANENT ESTABLISHMENT WOULD COMMENCE WITH THE PERFORMANCE OF BUSINESS ACTIVITIES IN CONNECTIO N WITH THE BUILDING SITE OR ASSEMBLY PROJECT. 36. THE ACTIVITIES AT SITE CARRIED ON BY ANY CONTRA CTOR THROUGH A SUB-CONTRACTOR WOULD NOT COUNT TOWARDS THE DURATION OF THE CONTRACTOR'S PE, AS IN THAT CASE, THE CONSTRUCTION SITE OR PROJECT 24 CANNOT BE CONSTRUED AS A FIXED PLACE OF BUSINESS OF THE CONTRACTOR AND WOULD FAIL ONE OF THE ESSENTIAL TESTS OF PARAGR APH I OF ARTICLE 5 OF THE DTAA. THIS, OF COURSE, WOULD NOT HOLD GOOD I F THE CONTRACTOR'S OFFICE OR ESTABLISHMENT- IN THE SOURCE COUNTRY (I.E. WHERE THE SITE/PROJECT IS LOCATED) IS ALSO INVOLVED ALONG WITH THE SUB-CONTRACTOR. 37. IN THE PRESENT CASE, THE ASSESSEE CLAIMS THAT T HE SURVEY WAS CONDUCTED BY AN INDEPENDENT THIRD PARTY ENGAGED BY THE ASSESSEE AND THAT TOO FOR A PERIOD OF 9 DAYS IN ON E INSTANCE AND 27 DAYS IN ANOTHER (FROM 27.02.2006 TO 07.03.2006 A ND 25.04.2006 TO 21.05.2006). THE ASSESSEE COMMENCED I TS ACTIVITIES AT SITE WHEN THE BARGES ENTERED INTO THE INDIAN TER RITORY ON 19.11.2006 AND SUCH ACTIVITIES RELATING TO THE INST ALLATION, TESTING AND COMMISSIONING OF THE PLATFORMS CONTINUED TILL 2 7.04.2007. THUS, THE ASSESSEE'S ACTIVITY AT SITE WOULD INDISPU TABLY COMMENCE ON 19.11.2006 AND CONTINUE TILL 20.04.2007, THAT IS , FOR A PERIOD OF LESS THAN NINE MONTHS. [EMPH ASIS IN BOLD IS PROVIDED BY US] 12. THE RATIO AS CULLED OUT FROM THE AFORESAID JUD GMENT IS THAT A BUILDING SITE OR AN ASSEMBLY PROJECT CAN ONLY BE CONS TRUED AT FIXED PLACE OF BUSINESS ONLY WHEN AN ENTERPRISE COMMENCES ITS ACTIVITIES AT THE PROJECT SITE. ANY ACTIVITY WHICH MAY BE RELATED O R INCIDENTAL BUT WAS NOT CARRIED OUT AT THE SITE IN THE SOURCE COUNTRY WO ULD CLEARLY NOT BE CONSTRUED AS A PE. ALBEIT , PREPARATORY WORK AT THE SITE ITSELF CAN BE COUNTED FOR THE PURPOSE OF DETERMINING OF DURATION OF PE. HOWEVER, IN THE PRESENT CASE THERE IS NO SUCH ALLEGATION OR MATERIA L ON RECORD THAT 25 ANY KIND OF PREPARATORY WORK HAD STARTED AT THE INSTALLA TION SITES PRIOR TO 4 TH OF JAN 2008. THE PERIOD FROM WHICH IT CAN BE RECKO NED THAT ENTERPRISE HAS STARTED TO PERFORM THE ACTIVITIES IN CON NECTION WITH INSTALLATION PROJECT OR SITE ETC. IS WHEN THE ACTUAL PURP OSE OF THE BUSINESS ACTIVITY HAD STARTED. THE PERFORMANCE OF THE ACTIVITIES IN THE PRESENT CASE CAN ONLY BE RECKONED FROM 4 TH JANUARY, 2008 (EVEN THOUGH LD. COUNSEL STATED THAT FIRST MOBILISATION OF VESS EL/BARGE WAS 23 RD FEBRUARY, 2008); AND NOT BEFORE THAT AS THE PREPARATOR Y WORK IF ANY, WAS FOR TENDERING PURPOSE AND TO GET THE CONTRACT. 13. IN SO FAR AS THE DATE OF COMPLETION, THE CONTR ACT PROVIDES THE COMPLETION DATE OF 1 ST AUGUST, 2008, WHEREAS AS PER THE MATERIAL PLACED ON RECORD AND ALSO THE PAYMENT SCHEDULE ETC., P OINTS OUT THAT ALL THE ACTIVITIES CONNECTED WITH THE PROJECT INCLUDING THE RECEIVING OF THE PAYMENTS WAS BEFORE 30 TH SEPTEMBER 2008 AND EVEN THE COMPLETION CERTIFICATE MENTIONS 30 TH SEPTEMBER 2008. THOUGH CERTAIN FORMALITIES FOR FINAL COMPLETION CERTIFICATE MAY HAVE E XCEEDED ONE OR TWO MONTHS BUT STILL IT WILL NOT MAKE THE CONTINUITY OF TH E ACTIVITY WHERE IT HAS BEEN BROUGHT ON RECORD THAT THE LAST BARGE SAILED OUT OR WAS DECOMMISSIONED FROM INDIA ON 25 TH SEPTEMBER, 2008 AND THE ENTIRE PAYMENTS WERE RECEIVED ON OR BEFORE THAT DATE. T HE ACTIVITY QUA THE PROJECT COMES TO AN END WHEN THE WORK GETS COMPLETE D AND THE RESPONSIBILITY OF THE CONTRACTOR WITH RESPECT TO THAT AC TIVITY COMES TO 26 END. HERE ACTIVITY OF THE ASSESSEE QUA THE PROJECT AS P ER THE TERMS OF CONTRACT HAD COME TO AN END ON OR BEFORE 30 TH SEPTEMBER, 2008 FOR THE REASON THAT; FIRSTLY , LAST SAIL OUT OF BARGE/VESSEL WAS 25 TH SEPTEMBER 2008 AND CUSTOMS AUTHORITIES HAVE ALSO CERTIFIED THE D EMOBILISATION BY THIS DATE; SECONDLY , ALL THE PAYMENTS RELATING TO CONTRACT WORK WERE RECEIVED BY THE ASSESSEE MUCH BEFORE THE CLOSING OF S EPTEMBER, 2008; THIRDLY , THE COMPLETION CERTIFICATE TOO MENTIONS THE DATE OF CO MPLETION AS 30 TH SEPTEMBER, 2008, THOUGH THE FORMALITIES OF FINAL COM PLETION CERTIFICATE MAY HAD EXCEED UPTILL NOVEMBER 2008, BUT THE DATE MENTION FOR COMPLETION IN THE CERTIFICATE IS 30 TH SEPTEMBER 2008 ONLY; AND LASTLY , THERE IS NOTHING ON RECORD TO SUGGEST THAT ANY ACTIVITY POST COMPLETION HAS BEEN CARRIED OUT BEYOND 31 ST DECEMBER, 2008 OR THE PROJECT OF THE ASSESSEE WAS NOT COMPLETELY ABANDONED B EFORE THE PERIOD OF 12 MONTHS. THE CONTENTIONS RAISED BY THE LD. CIT DR IN HIS SUBMISSIONS, BOTH FOR THE STARTING PERIOD AND FINAL E ND DATE OF THE INSTALLATION PROJECT IS WITHOUT ANY FACTUAL MATERIAL TO SU PPORT. HIS INFERENCE ARE BASED ON PRESUMPTIONS THAT FOR CARRYING OUT SUCH A WORK AND TO COMPLY WITH THE CERTAIN CONDITIONS OF CONTRACT THE RE MUST HAVE BEEN SUBSTANTIVE ACTIVITY BEFORE THE EFFECTIVE DATE; AND AFTER THE DATE OF DECOMMISSIONING OF THE PROJECT/ DEMOBILISATION CERTAIN FORMALITIES MUST HAVE BEEN CARRIED OUT. SUCH A CONTENTION SANS ANY CORROBORATIVE MATERIAL CANNOT BE ACCEPTED, BECAUSE THE ONUS IS HEAV ILY UPON THE REVENUE TO ESTABLISH THAT THAT ASSESSEES ACTIVITY HAD C ROSSED THE 27 THRESHOLD PERIOD OF 12 MONTHS AND HENCE CONSTITUTES PE IN INDIA IN TERMS OF ARTICLE 5(2)(G) SO AS TO TAX THE RECEIPTS IN INDIA AS PER ARTICLE 7. 14. THUS, ON THE FACTS AND MATERIAL ON RECORD AN D IN VIEW OF OUR REASONING GIVEN ABOVE WHICH IS IN CONSONANCE AND IN LINE WITH THE PRINCIPLE LAID DOWN IN THE HONBLE JURISDICTIONAL HI GH COURT, WE HOLD THAT THRESHOLD PERIOD OF 12 MONTHS HAVE NOT EXCEEDED I N THE PRESENT CASE AND CONSEQUENTLY NO PE CAN BE SAID TO HAVE BEEN ESTABLISHED IN ARTICLE 5(2)(G) . ACCORDINGLY, WE HOLD THAT NO INCOME OF THE ASSESSEE ON THE CONTRACT EXECUTED BY ASSESSEE IN INDIA CAN BE HELD TO BE TAXABLE IN TERMS OF ARTICLE 7. THUS GROUNDS RAISED BY THE ASSE SSEE ON THIS SCORE IS ALLOWED. 15. IN VIEW OF OUR FINDING GIVEN ABOVE THE OTHER GROUNDS RAISED VIDE GROUND NO. 5, 6 AND 7 HAVE BEEN RENDERED PURELY CON SEQUENTIAL. 15. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH JULY, 2018. SD/- SD/- (O.P. KANT) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 06/07/2018 VEENA COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 28 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI