Seabird Exploration Asai pacific PTE, Ltd. , Dehradun V. DCIT, International Taxational , Circle-2, Dehradun, Dehradun

ITA 82/DDN/2023

• Counselvise Citation: [2024] 130 COUNSELVISE.COM (IT) 2285 (ITAT-DEHRADUN)
• Duration Of Justice: 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 16-05-2024
• Assessment Year: 2021-2022
• Appeal Filed On: 08-11-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MAYANK KUMAR
• Assessee Lawyers: SANJAY AGGARWAL
• Keywords: Question of law; Double taxation relief; Permanent establishment
• Section: 143(3); 263; 13; 5(2); 44BB

Judgement Text

1 ITA No. 82/DDN/2023 Seabird Exploration Asia Pacific PTe. Ltd. IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘DEHRADUN BENCH’: NEW DELHI BEFORE, DR. B. R. R.KUMAR, ACCOUNTANT MEMBER AND SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER ITA No.82/DDN/2023 (A.Y.2021-22) Seabird Exploration Asia Pacific PTE, Ltd. C/o. Tass advisors, LLP, 13, Tower, 4A, Race Course, Dehradun PAN : AATCS6564M Vs. DCIT International Taxation, Circle-2, Subhash Road, Dehradun Uttarakhand (Appellant) (Respondent) Appellant by Sh. Sanjay Aggarwal, CA and Sh. Taranpreet Singh, Adv Respondent by Sh. Mayank Kumar, JCIT, DR Date of Hearing 28/08/2024 Date of Pronouncement 05/09/2024 ORDER PER YOGESH KUMAR U.S., JM: This appeal is filed by the assessee against the Assessment Order of the Income Tax Department DDIT/ADIT (INTL) 2, DDN (‘Ld. DDIT’ for short), dated 13/09/2023 in consonance with the DRP for Assessment Year 2021-22. 2 ITA No. 82/DDN/2023 Seabird Exploration Asia Pacific PTe. Ltd. 2. The Grounds of Appeal are as under:- “1 That on the facts and circumstances of the case, the Ld. AO has erred in erroneously assuming that the appellant has PE in India under the general clause 1 of Article 5 of the India-Singapore DTAA. 2. That on the facts and circumstances of the case, the Ld. AO has failed to acknowledge the fact that the services under the Indian contract were carried for a period of 35 days in financial year (FY) 2019-20 and 58 days during FY 2020-21, i.e., total 93 days/which is less than the threshold of 183 days as envisaged by Article 5(5) of India and Singapore DTAA. 3. That on the facts and circumstances of the case, the Ld. AO has failed to appreciate the interplay between Article 5(1) and Article 5(5) of the Agreement for avoidance of Double Taxation between India and Singapore. 4. That on the facts and circumstances of the case, the Ld. AO has failed to appreciate the ruling of Hon'ble ITAT in case of Nordic Maritime Pte. Ltd. (ITA. No.1865/DEL/2019) wherein it was held that a general clause of a DTAA (Article 5(1)) cannot override the specific clause (Article 5(5). That the Appellant reserves its right and prays to the Hon'ble Tribunal to permit the Appellant to add, alter, amend, vary or substitute any of the aforesaid ground(s) of Appeal before or at the time of hearing of the present appeal.” 3. Brief facts of the case are that, the Assessee Company is incorporated under law of Singapore. The assessee is a global provider of marine 2D and 3D seismic data acquisition for oil and 3 ITA No. 82/DDN/2023 Seabird Exploration Asia Pacific PTe. Ltd. gas industry. The assessee company is a market leader in the high- end 2D seismic services segment and also a leading provider of niche 3D and source vessel solutions. During the year under consideration, Vedanta Limited awarded a contract to Seabird in India. Vedanta has been awarded 41 blocks across 13 states of India for undertaking petroleum operations, including exploration, appraisal and development of hydrocarbons under the Hydrocarbon Exploration Licensing Policy (HELP) and Open Acreage Licensing Policy (OALP) pursuant to Revenue Sharing Contract with respect to each block. The assessee had entered into a contract with Vedanta Limited) The assessee received revenues amounting to INR 214,96,39,019/- during the previous FY 2020-21from the contract with Vedanta Limited and claimed to be exempt from tax in India as per Article 5(5) of India- Singapore DTAA vide Notice u/s 142(2) of the Act, the Assessee was requested to furnish the following information’s by the A.O. 4. You have claimed income from business/profession as non- taxable in India in view of non-existence of PE in India under DTAA. Please explain why should not be taxed in India." The assessee 4 ITA No. 82/DDN/2023 Seabird Exploration Asia Pacific PTe. Ltd. made submission vide letter dated 12/12/2022. The submissions made by the assessee has been considered by the A.O. and not found acceptable. 5. The assessee contended before the A.O that its operation is less than 183 days it is covered under Article 5(5) of DTAA, which is special clause, rather than 5(1) of DTAA, which is a general clause of DTAA, which is a general clause, of DTAA between India- Singapore and therefore, doesn’t have a PE and hence, its income from exploration activities in India is not taxable in India. The Ld. A.O. was of the opinion that though the Article 5(5) indicates that any specified business activities if it is carried through more than 183 days in a fiscal year for exploration activities, the assessee is deemed to have a permanent establishment (PE) in the contracting states, however, this provision doesn’t preclude invocation of Article 5(1) and Article 5(2) and other Articles regarding permanent establishment (PE) as per the India-Singapore DTAA. Therefore, the Assessee’s argument that it is covered under a special clause of Article 5(5), and therefore, doesn’t have a PE is specious. Accordingly, the final assessment order came to be passed on 5 ITA No. 82/DDN/2023 Seabird Exploration Asia Pacific PTe. Ltd. 13/09/2023 u/s 143(3) r.w.s 144C(13) of the Act by making addition on account of deemed profit u/s 44BB @ 10% at Rs. 21,49,63,900/- by computing the income of the assessee at Rs. 21,49,63,900/- as against NIL income filed by the assessee. Aggrieved by the final assessment order passed dated 13/09/2023, the assessee preferred the present Appeal on the Grounds mentioned above. 6. The Ld. Counsel for the assessee submitted that the Ld. A.O. erred in assuming that the assessee has PE in India under General Clause 1 of Article 5 of the India-Singapore DTAA and further failed to acknowledge the fact that the services under the Indian Contract were carried only for a period of 35 days in Financial Year 2019-20 and 58 days during Financial Year 2020-21 i.e. total 93 days which is less than threshold of 183 days. Thus, the assessee does not constitute PE in India in view of specific Article 5(5) of DTAA between India and Singapore. The A.O. committed error in only relying on Article 5(1) of DTAA and the order impugned passed by the A.O. contrary to order of the Tribunal in the case of Nordic Maritime Pte. Ltd. In ITA No. 1865/Del/2019 wherein it was 6 ITA No. 82/DDN/2023 Seabird Exploration Asia Pacific PTe. Ltd. specifically held that a General Clause of TDAA (Article 5(1) cannot over ride the specific Clause i.e. Article 5(5), thus, the Ld. Counsel for the assessee sought for allowing the Appeal deleting the addition. 7. Per contra, the Ld. Departmental Representative submitted that as per Article 5(1) of India Singapore DTAA, the assessee has a fixed place of business in India in the form of vessel and equipment through which it is carrying on its business wholly and partly and there is no condition in Article 5(1) for number of days being spent in India. Further submitted that irrespective of the number of days spend in India, the assessee had fixed place of business in India in the form of vessel and equipment therefore, the A.O. has rightly treated that the assessee has PE in India as per General Clause 1 of Article 5 of India-Singapore DTAA. Thus submitted that the A.O. rightly treated the gross receipt attributed to PE treating the same as deemed profit u/s 44BB had 10% and made addition of Rs. 21,49,63,900/-, therefore, submitted that the Grounds of Appeal of the assessee are deserves to be dismissed. 7 ITA No. 82/DDN/2023 Seabird Exploration Asia Pacific PTe. Ltd. 8. We have heard both the parties and perused the material available on record. During the year under consideration, Vedanta Ltd. awarded a contract to the assessee with 41 blocks across 13 states of India for undertaking petroleum operations, including exploration, appraisal and development of hydrocarbons under the Hydrocarbon Exploration Licensing Policy (HELP) and Open Acreage Licensing Policy (OALP) pursuant to revenue sharing contract with respect to each block amounting to Rs. 214,96,39,019/- during Financial Year 2020-21, from the said contract with Vedanta Ltd. has been claimed exempt from tax in India as per Article 5(5) of India-Singapore DTAA. The said claim of the assessee has not been accepted by the A.O. on the ground that the Article 5(5) indicates that any specified business activities if it is carried through more than 183 days in a fiscal year of exploration activities, the assessee is deemed to have a Permanent Establishment (PE) in the contracting states, however the said provision doesn’t preclude invocation of Article 5(1) and Article 5(2) and other Articles regarding Permanent Establishment as per the India-Singapore DTAA. The contention of the assessee that the transactions covered under Sub Clause of Article 5(5) of the DTAA 8 ITA No. 82/DDN/2023 Seabird Exploration Asia Pacific PTe. Ltd. and therefore, does not have PE. The said contention of the assessee has not been appreciated by the A.O., accordingly, made addition. 9. To decide the said issue and for the sake of ready reference Article 5 of India-Singapore DTAA is produced as under:- “Article 5 of India-Singapore DTAA”: 1. “For the purpose of this Agreement, the term “permanent establishment” means a fixed place of business through which the business of the enterprise is wholly or partly carried on. 2. The term “permanent establishment” includes especially: 3. (a) A place of management; (b) A branch; (c) An office (d) A factory (e) A workshop; (f) A mine, an oil or gas well, a quarry or any other place of extraction of natural resources; (g) A warehouse in relation to a person providing storage facilities for others; (h) A farm plantation or other place where agriculture, forestry, plantation or related activities are carried on; (i) Premises used as a sales outlet or for soliciting and receiving order; (g) An installation or structure used for the exploration or exploitation of natural resources but only if so used for a period of more than 120 days in any fiscal year. 9 ITA No. 82/DDN/2023 Seabird Exploration Asia Pacific PTe. Ltd. A building site or construction, installation or assembly project constitutes a permanent establishment only if it continues for a period of more than 183 days in any fiscal year, 4. An enterprise shall be deemed to have a permanent establishment in a Contracting State and to carry on business through that permanent establishment if it carries on supervisory activities in that Contracting State for a period of more than 183 days in any fiscal year in connection with a, building site or construction, installation or assembly project which is being undertaken in that Contracting State. 5. Notwithstanding the provisions of paragraphs 3 and 4, and. enterprise shall be deemed to have a permanent establishment in a Contracting State and to carry on business through that permanent establishment if it provides services or facilities in that Contracting State for a period of more than 183 days in any fiscal year in connection with the exploration, exploitation or extraction of mineral oils in that Contracting State. 6. An enterprise shall be deemed to have a permanent establishment in a Contracting State if it furnishes services, other than services referred to in paragraphs 4 and 5 of this Article and technical services as defined in Article 12, within a Contracting State through employees or other personnel, but only if: a activities of that nature continue within that Contracting Slate for a period or periods aggregating more than 90 days in any fiscal year; or activities are performed for a related enterprise (within the meaning of Article 9 of this Agreement} for a period or periods aggregating more than 90 days in any fiscal year; or b Activities are performed for a related enterprise (within the meaning of Article 9 of this Agreement} for a period or periods aggregating more than 30 days in any fiscal year. 7. Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include; 10 ITA No. 82/DDN/2023 Seabird Exploration Asia Pacific PTe. Ltd. However, the provisions of sub-paragraphs (a) to (e) shall not I applicable where the enterprise maintains any other fixed place business in the other Contracting State through which the business of the enterprise is wholly or partly carried on. 8. Notwithstanding the provisions of paragraphs 1 and 2, where a person - other than an agent of an independent status to whom paragraph applies - is acting in a Contracting State on behalf of an enterprise of the other Contracting State that enierpri.se shall be deemed to have permanent establishment in the first-mentioned. State, if— (a) The use of facilities solely for the purpose of storage, display or occasional delivery of goods or merchandise belonging to the enterprise (b) the maintenance of a stock of goods of merchandise belonging' to the enterprise solely for the purpose of storage, display or occasional delivery; (c) the maintenance of a stock of goods or merchandise belonging to the enterprise sole for the purpose of processing by (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for (e) the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research o for similar activities which have a preparation 11 ITA No. 82/DDN/2023 Seabird Exploration Asia Pacific PTe. Ltd. 9. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status provided, that such persons are acting in the ordinary course of their business. However, when the activities of such, an agent are devoted wholly or almost wholly on behalf of that enterprise itself or on behalf of that enterprise and other enterprises controlling, controlled by, or subject to the same common control, as that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph. 10. The fact that a company which, is a. resident of a Contracting Stale controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other Contracting State {whether through a permanent establishment or otherwise shall not of itself constitute/either company a permanent establishment of the other. ” (a) he has and habitually exercises in that State authority to conclude contracts on behalf of the enterprise; unless his activities are limited to the purchase of goods or merchandise for the enterprise; (b) he has no such authority, but habitually maintains in the first-mentioned State a stock goods or merchandise from which he regular delivers goods or merchandise on behalf of the enterprise; or (c) He habitually secures orders in the first mentioned State, wholly or almost wholly for the enterprises itself or for the enterprise and other enterprises controlling, controlled by, or subject to the same common control, as that enterprise 12 ITA No. 82/DDN/2023 Seabird Exploration Asia Pacific PTe. Ltd. 10. The issue as to whether an assessee carrying out specific activity of providing services of facilities in connection with exploration, exploitation or extraction of mineral oils, which activity falls within the scope and definition given in Article 5(5) of DTAA, then, whether the general provision of Article 5 of the DTAA would apply or not?, has been considered by the Co-ordinate Bench of the Tribunal and the issue has been decided in favour of the Assessee thereon in ITA No. 1865/Del/2019 in the case of M/s Narodic Maritime Ptd. Ltd. Vs. DCIT(International Taxation) vide order dated 20/03/2020 in following manners:- “10. The core issue before us is that, whether assessee who is carrying out specific activity of providing services or facilities in connection with the exploration, exploitation or extraction of mineral oils, which activity falls within the scope and definition given in Article 5(5), then whether general provision of Article 5(1) would apply or not. There are three types of PE contemplated under Article 5, firstly an establishment which is carrying out a business from a fixed place of business like office, branch, etc. and second type is agency PE. The third type of PE is for construction and installation sites; supervisory or carrying out assembly project on a site, or services or facilities in connection with the exploration, exploitation or extraction of mineral oils etc., which are specific activity based PE generally with a threshold period, which here in this case is 183 days. Article 5(1) contains the general rule for permanent 13 ITA No. 82/DDN/2023 Seabird Exploration Asia Pacific PTe. Ltd. establishment that it must be a fixed place business at the disposal of the enterprise through which the business enterprise carries on its business. Article 5(2) contains illustrative list of places of business which prima facie constitute PE, provided it satisfies the requirement of Article 5(1). Article 5(3) to 5(5) contains special rule for construction and installation site or services or facilities in connection with the exploration, exploitation or extraction of mineral oils etc. and it is a limitation on the general provision of Article 5(1). Once activities as defined para 5 or 3 are attracted, the minimum period test has to be applied" and being specific activity based article, it will prevail over general rule of Article 5(1). If such activity based PE are to seen from the general rule perspective only then there is no requirement of such clauses in the treaty and threshold period. In that case there would be fixed place PE and agency PE. Even though the specific activity based PE can have a fixed place through which it carries out the activities, but prescribed threshold or minimum period has to be read into and such time period thus puts a limitation on the general rule of Article 5(1). Hon’ble Uttarakhand High Court in the case of DIT vs. Hyundai Heavy Industries Co. Ltd. in ITA No.30/2011 have dealt the similar issue wherein, the Hon’ble Court relying upon (2007) 163 taxman 378 (Uttarakhand), held that division bench of this court upheld the findings of the ITAT that Article 5(3) is an exception to Article 5(1) and 5(2) and would prevail notwithstanding Article 5(1) and 5(2). Since, the former is a specific provision. The relevant observation of the Hon'ble High Court reads as under:- In Commissioner of Income-tax vs. Hyundai Heavy Industries Co. Ltd: (2007) 163 TAXMAN 378, the Division Bench of this Court had observed: 14 ITA No. 82/DDN/2023 Seabird Exploration Asia Pacific PTe. Ltd. “...... The Income-tax Appellate Tribunal in its judgment has recorded that learned counsel stated that sub- paragraph 1 of the article 5 of the CADT generally provided that affixed place of business would be regarded as a ‘permanent establishment’ if the assessee carried on his business wholly or partly from this fixed place. Article 5 (2) provided that the term ‘permanent establishment’ would include six locations referred to therein. According to learned counsel, the six locations could become permanent establishments only if they satisfied the test laid down in article 5 (1), i.e. the business of the enterprise was wholly or partly carried on through such locations. Article 5 (3) according to learned counsel was a specific provision and it was well- settled that a specific provision overrides the general provision. The plea in concluding was that article 5 (3) was an exception to article 5(1) and article 5 (2) and where a building, site or construction assembly or installation project does hot exist for a period exceeding nine months, an office rendering support services to such project could not be regarded as a ‘permanent establishment’ within the meaning of articles 5(1) and 5(2) since article 5(3) was a specific provision. The Income-tax Appellate Tribunal has also recorded in its finding that we are not sufficiently convinced to treat the income from Indian operations at Rs. Nil for the assessment year 1988-89, specially where the assessee had failed even before the tax authorities to support its facts and figures and we have upheld the application to section 145. The Income-tax Appellate Tribunal was right in rejecting the argument of zero profit on the Indian operations and to accept the alternative 15 ITA No. 82/DDN/2023 Seabird Exploration Asia Pacific PTe. Ltd. argument holding that Instruction No. 1767 is after all a guideline and computation can be made under the relevant provisions of the Act read with the guidelines themselves. The Income-tax Appellate Tribunal after detailed discussions held that Instruction No. 1767 is after all a guideline and computation can be made under the relevant provisions of the Act read with the guidelines themselves and further held that it would be fair and reasonable if profits from Indian operations are worked out by applying a rate of 3 per cent. With the agreement of learned counsel for the parties, the Income-tax Appellate Tribunal has rightly held that a specific provision would override a general provision. All the issues in the appeal are concluded by a finding of fact. 7 Thus, in our opinion, no substantial question of law arises to be answered in these appeals ” (emphasis supplied). The finding recorded by the Income Tax Appellate Tribunal in the orders passed in the aforesaid three years, was that Article 5 (3) is an exception to Articles 5 (1) & 5 (2), and would prevail notwithstanding Article 5 (1) & 5 (2), since the former was a specific provision. This conclusion of the Tribunal has not been negated by the Division Bench of this Court in the aforesaid judgment. While Sri H.M. Bhatia, learned Senior Standing Counsel for Income-tax, may be justified in his submission that the Division Bench has not, independently, analyzed the scope of Article 5 of the DTAAA, and has not recorded its opinion on the construction to be placed on various sub-Articles of Article 5 of the DTAA, the fact remains that the Division Bench has not interfered with the order of the 16 ITA No. 82/DDN/2023 Seabird Exploration Asia Pacific PTe. Ltd. Tribunal. The Commissioner of Income Tax (Appeals) was, in the present case, justified in holding that, since the issue stood concluded in the earlier assessment year in the assessee’s own case, by the Income Tax Appellate Tribunal, no interference was called for. 11. Thus, the conclusion of the Assessing Officer is consonance with judgment of jurisdictional High Court; therefore, it cannot be held that the assessment order is erroneous in so far as prejudicial to the interest of the Revenue and therefore, the Ld. CIT was not justified in cancelling the assessment order in his revisional jurisdiction u/s. 263 of the Act. Moreover, Ld. Assessing Officer has not only carried out proper enquiry but also examined the issue in detail and reach to a conclusion which is permissible view and Ld. CIT cannot cancel the assessment based on his opinion. Accordingly, the impugned order passed u/s. 263 is quashed.” 11. In the present case, admittedly, the services were carried out as per the contract between the assessee and Vedanta Ltd. for a period of 35 days in Financial Year 2019-20 and 58 days during Financial Year 2020-21 i.e. total 93 days, which being less than threshold of 183 days and in view of pacific Clause 5 of Article 5 of India-Singapore DTAA which mandates for providing services or facilities in contracting state for a period of more 183 days in a fiscal year in connection with exploration, exploitation and 17 ITA No. 82/DDN/2023 Seabird Exploration Asia Pacific PTe. Ltd. extraction of mineral oils in that contracting state, then only it shall be deemed to have a Permanent Establishment in a contracting state. In our opinion, the Department of Revenue has erroneously assumed that the assessee has PE in India. The said view of this Bench has already been fortified by the Co-ordinate Bench of the Tribunal in the case of M/s Narodic Maritime Ptd. Ltd. (supra), therefore, we find merit in the Grounds of appeal, accordingly, we delete the addition made in the order impugned by allowing the Grounds of Appeal of the assessee. 12. In the result, the Appeal of the assessee is allowed. Order pronounced in open Court on 05th September, 2024 Sd/- Sd/- (Dr. B. R. R. KUMAR) (YOGESH KUMAR U.S.) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 05/09/2024 R.N, Sr. Ps. Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT 18 ITA No. 82/DDN/2023 Seabird Exploration Asia Pacific PTe. Ltd. ASSISTANT REGISTRAR ITAT, NEW DELHI