J RAY McDERMOTT EASTERN HEMISPHERE LTD, MUMBAI V. DDIT (IT) 3(1), MUMBAI

ITA 8720/MUM/2010

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3838 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: L
• Next Hearing Date: 23-02-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 14-12-2010
• Court: TRIBUNAL
• Keywords: Business income; Double taxation relief; Deemed to accrue or arise in india; Permanent establishment; Advance ruling; Reassessment proceedings
• Section: 5(2); 133A; 234B; 133(6); 148

Judgement Text

, , L, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.4028/MUM/2002 ASSESSMENT YEAR: 1998-99 A D IT ( IT) 1(2) , AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 / VS. M/S. J. RAY MC DERMOTT EASTERN HEMISPHERE LTD., C/O. PRICE WATERHOUSE & CO. CAS TRADE WORLD, C WING, 8 TH FLOOR, KAMLA MILLS COMPOUND, LOWER PAREL, SENAPATI BAPAT MARG MUMBAI- 400013 (REV ENUE) (ASSESSEE ) P.A. NO. AABCM1087 F ITA NOS.4434/MUM/2002 ASSESSMENT YEAR: 1998-99 M/S. J. RAY MC DERMOTT EASTERN HEMISPHERE LTD., C/O. PRICE WATERHOUSE & CO. CAS TRADE WORLD, C WING, 8 TH FLOOR, KAMLA MILLS COMPOUND, LOWER PAREL, SENAPATI BAPAT MARG MUMBAI- 400013 / VS. JCIT S. RANGE - 12, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 (ASSESSEE ) (REVENUE) P.A. NO. AABCM1087 F ITA NOS.5302/MUM/2004 ASSESSMENT YEAR: 2000-01 J. RAY MC DERMOTT 2 M/S. J. RAY MC DERMOTT EASTERN HEMISPHERE LTD., C/O. PRICE WATERHOUSE & CO. CAS TRADE WORLD, C WING, 8 TH FLOOR, KAMLA MILLS COMPOUND, LOWER PAREL, SENAPATI BAPAT MARG MUMBAI- 400013 / VS. JCIT (IT) - 4 MUMBAI- (ASSESSEE ) (REVENUE) P.A. NO. AABCM1087F ITA NOS.2226 & 2227/MUM/2009 ASSESSMENT YEAR: 2000-01 M/S. J. RAY MC DERMO TT EASTERN HEMISPHERE LTD., C/O. PRICE WATERHOUSE & CO. CAS TRADE WORLD, C WING, 8 TH FLOOR, KAMLA MILLS COMPOUND, LOWER PAREL, SENAPATI BAPAT MARG MUMBAI- 400013 / VS. ADIT (IT) - 3(1) MUMBAI- (ASSESSEE ) (REVENUE) P.A. NO. AABCM1087F ITA NO.2309/MUM/2006 ASSESSMENT YEAR: 2002-03 M/S. J. RAY MC DERMOTT EASTERN HEMISPHERE LTD., C/O. PRICE WATERHOUSE & CO. CAS TRADE WORLD, C WING, 8 TH FLOOR, KAMLA MILLS COMPOUND, LOWER PAREL, SENAPATI BAPAT MARG MUMBAI- 400013 / VS. ADIT (IT) - 3(1) MUMBAI- (ASSESSEE ) (REVENUE) P.A. NO. AABCM1087F ITA NOS.8720, 8718 & 8717/MUM/2010 ASSESSMENT YEARS: 2004-05, 2005-06 & 2007-08 J. RAY MC DERMOTT 3 M/S. J. RAY MC DERMOTT EASTERN HEMISPHERE LTD., C/O. PRICE WATERHOUSE & CO. CAS TRADE WORLD, C WING, 8 TH FLOOR, KAMLA MILLS COMPOUND, LOWER PAREL, SENAPATI BAPAT MARG MUMBAI- 400013 / VS. DDIT (IT) - 3(1) MUMBAI- (ASSESSEE ) (REVENUE) P.A. NO. AABCM1087F ITA NO.7083/MUM/2010 ASSESSMENT YEAR: 2006-07 DDIT (IT) - 3(1) MUMBAI / VS. M/S. J. RAY MC DERMOTT EASTERN HEMISPHERE LTD., C/O. PRICE WATERHOUSE & CO. CAS TRADE WORLD, C WING, 8 TH FLOOR, KAMLA MILLS COMPOUND, LOWER PAREL, SENAPATI BAPAT MARG MUMBAI- 400013 (REVENUE) (ASSESSEE ) P.A. NO. AABCM1087F ITA NO.7855/MUM/2011 ASSESSMENT YEAR: 2008-09 M/S. J. RAY MC DERMOTT EASTERN HEMISPHERE LTD., C/O. PRICE WATERHOUSE & CO. CAS TRADE WORLD, C WING, 8 TH FLOOR, KAMLA MILLS COMPOUND, LOWER PAREL, SENAPATI BAPAT MARG MUMBAI- 400013 / VS. ADIT (IT) - 3(1) MUMBAI- (ASSESSEE ) (REVENUE) P.A. NO. AABCM1087F / ASSESSEE BY SHRI KANCHUN KAUSHAL (AR) / REVENUE BY SHRI JASBIR CHO UHAN , (DR) J. RAY MC DERMOTT 4 / DATE OF HEARING : 10/03/2016 / DATE OF ORDER: 06/05/2016 / O R D E R PER BENCH: THESE APPEALS ARE FILED BY THE ASSESSEE AND REVENUE PERTAINING TO SAME ASSESSEE AND INVOLVING COMMON IS SUES PERMEATING THROUGH DIFFERENT YEARS; THEREFORE, FOR THE SAKE OF CONVENIENCE THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI KANCHUN KAUSHAL, AUTHORISED REPRESENTATIVE (AR ) ON BEHALF OF THE ASSESSEE AND BY SHRI JASBIR CHAUHAN, DEPARTMENTAL REPRESENTATIVE (CIT-DR) ON BEHALF OF T HE REVENUE. FIRST WE SHALL TAKE UP REVENUES APPEAL IN ITA NO.4028/MUM/2002 FOR A.Y. 1998-99: THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL ARE REPRODUCED BELOW: 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) ERRED IN HOLDING THAT FOR THE COMPUTATION OF PERIOD OF STAY, BOTH THE CONTRACTS SHOULD BE CONSIDERED SEPARATELY AND ACCORDINGLY, TH E STAY OF THE APPELLANT FOR ANY OF THE AFORESAID CONT RACTS DURING THE ASSESSMENT YEAR IS NOT NINE MONTHS WITHO UT APPRECIATING THE FACT THAT THE FIRST AND THE SECOND PHASE OF THE CONTRACT WITH M/S. ENRON OIL & GAS WAS J. RAY MC DERMOTT 5 TO BE CONSIDERED AS ONE CONSOLIDATED CONTRACT AND T HAT THE AGGREGATE DURATION OF THE PERIOD FOR EXECUTING THE PROJECTS/ ACTIVITIES IN INDIA WOULD CONSTITUTE THE P.E. IN INDIA. 2.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN HOLDING THAT THERE IS NO P.E. I N INDIA IN VIEW OF THE ARTICLE 5 OF THE DTAA BETWEEN INDIA AND MAURITIUS AND THAT THE ACTUAL TECHNICAL OPERATIONS AND THAT PRELIMINARY COMMERCIAL PREPARATIONS AND SUBSEQUENT LEGAL DISCUSSIONS WERE NOT TO BE INCLUDE D IN THE CALCULATION OF THE DURATION PERIOD WITHOUT APPR ECIATING THE FACT THAT THE PERIOD WITHOUT APPRECIATING THE F ACT THAT THE PERIODS SPENT IN INDIA ON PRE-JOB INSPECTI ON ON SITE, MOBILIZATION OF PERSONNEL AND VESSELS BEFORE THE EXECUTION OF THE CONTRACT, DEMOBILIZATION OF THE PE RSONNEL AND VESSELS AFTER THE EXECUTION OF THE CONTRACTS, W INDING UP ACTIVITIES, ETC FORM THE INTEGRAL PART OF THE CO NTRACTS EXECUTED BY THE ASSESSEE IN INDIA AND THEREFORE, TH E SAME CANNOT BE EXCLUDED FOR CONSIDERING THE DURATIO N PERIOD OF THE ASSESSEE'S ACTIVITIES IN INDIA. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) ERRED IN DIRECTING THE ASSESSING OF FICER TO DELETE THE INTEREST CHARGED U/S. 234B OF THE I.T . ACT, 1961. 4. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE SET-ASIDE AND THAT OF THE AO RESTO RED. 5. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3. GROUND NOS. 1 & 2: THE ISSUE INVOLVED BEFORE US IS WHETHER FOR THE PURPOSE OF DETERMINATION OF PERMAN ENT ESTABLISHMENT (PE), THE COMPUTATION OF PERIOD OF S TAY OF THE DIFFERENT PROJECTS CARRIED OUT BY THE ASSESSEE AT D IFFERENT SITES OF THE ASSESSEE COMPANY IS TO BE COMBINED TOGETHER FOR DETERMINING THE PERIOD OF STAY AND AGGREGATE DURATI ON OF PERIOD IS TO BE SEEN OR DURATION OF EXECUTION OF EACH OF THE PROJECTS IS TO BE EXAMINED SEPARATELY TO TEST THE T IME LIMIT OF 9 J. RAY MC DERMOTT 6 MONTHS, AS STIPULATED IN ARTICLE 5 - PARA 2(I) OF I NDO-MAURITIUS DOUBLE TAXATION AVOIDANCE AGREEMENT (IN SHORT REFER RED TO AS DTAA OR TREATY). 3.1. THE BRIEF FACTS NOTED FROM THE PERUSAL OF THE ASSE SSMENT ORDER ARE THAT THE ASSESSEE COMPANY FILED ITS RETUR N OF INCOME SHOWING TOTAL INCOME AT NIL. THE ASSESSEE COMPANY I S A COMPANY INCORPORATED IN MAURITIUS, AND BELONGS TO M C DERMOTT GROUP OF COMPANIES. THE ASSESSEE COMPANY WA S ENGAGED IN INDIA IN TRANSPORTATION, INSTALLATION AN D CONSTRUCTION OF OFF-SHORE PLATFORMS FOR THE PURPOSE OF MINERAL OIL EXPLORATION. IN THE RETURN OF INCOME FILED BY T HE ASSESSEE FOR THE IMPUGNED YEAR FOLLOWING NOTE WAS GIVEN: NOTE: THE COMPANY IS INCORPORATED IN MAURITIUS AND IS A RESIDENT IN MAURITIUS UNDER THE INCOME TAX ACT OF MAURITIUS AND AS DEFINED IN ARTICLE 4 OF THE TAX TR EATY BETWEEN INDIA AND MAURITIUS (THE TREATY). COPY OF THE TAX RESIDENCE CERTIFICATE IS ENCLOSED HEREWITH (ANN EXURE A). THE COMPANY DOES NOT HAVE A PERMANENT ESTABLISHMENT IN INDIA AS DEFINED IN ARTICLE 5 OF THE TREATY. THE COMPANY WAS ENGAGED IN THE EXECUTION OF INSTALL ATION CONTRACTS IN INDIA. HOWEVER, THE PROJECT WORK (ACTI VITIES) IN INDIA ARE PERFORMED/ TO BE PERFORMED AND THE RESPEC TIVE CONTRACTS ARE FOR A DURATION OF LESS THAN 9 MONTHS AS DETAILED HEREIN AFTER. CONTRACT (D-4522) WITH ENRON OIL AND GAS INDIA WHIC H COMMENCED ON FEBRUARY 05,1997 WAS COMPLETED ON MAY 19, 1997 AS EVIDENCED BY COMPLETION CERTIFICATE (AN NEXURE B). IN VIEW OF THE AFORESAID, INCOME UNDER ALL THE CONT RACTS IS NOT TAXABLE IN INDIA AS STIPULATED IN ARTICLE 7 OF THE TREATY. J. RAY MC DERMOTT 7 3.2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, LD. A O ANALYSED THE VARIOUS CONTRACTS EXECUTED BY THE ASSE SSEE COMPANY WITH M/S. ENRON OIL AND GAS INDIA WITH DIFF ERENT ASPECTS AND RELYING UPON AND FOLLOWING THE ASSESSME NT ORDER FOR 1997-98, THE WORK EXECUTED BY THE ASSESSEE AT D IFFERENT LOCATIONS WAS CONSIDERED AS ONE, AND ACCORDINGLY NU MBER OF DAYS FOR EXECUTION OF ALL THE PROJECTS WERE AGGREGA TED TO DETERMINE THE PERIOD OF 9 MONTHS (INADVERTENTLY MEN TIONED IN THE ASSESSMENT ORDER AS 90 DAYS). THE AO ALSO INCLU DED THE NUMBER OF DAYS ESTIMATED TO HAVE BEEN SPENT FOR SUP ERVISORY ACTIVITIES BEFORE THE ACTUAL COMMENCEMENT OF CONSTR UCTION WORK. ACCORDINGLY, BY TREATING ALL OF THE CONTRACTS EXECUTED IN INDIA AS ONE, IT WAS HELD THAT THE ASSESSEE HAD A P E IN INDIA. 3.3. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE LD. CIT(A) WHEREIN DETAILED SUBMISSIONS WERE FILED BY T HE LD. COUNSEL. IT WAS SUBMITTED THAT THE ASSESSEE BEING R ESIDENT OF MAURITIUS IS LIABLE FOR TAX IN MAURITIUS AND POSSES SED THE TAX RESIDENCY CERTIFICATE ISSUED BY THE INCOME TAX AUTH ORITY OF MAURITIUS. ACCORDINGLY, TAXATION OF THE ASSESSEE IS GOVERNED BY DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND MAURITIUS. IT WAS FURTHER SUBMITTED THAT THE AS SESSEE HAS EXECUTED FOLLOWING CONTRACTS: CONTRACT NO. CONTRACT WITH DURATION OF WORK IN INDIA GROSS REVENUE US$ ANNEXURE D4507 ENRON OIL AND GAS INDIA LTD. 12 MARCH 1996 TO 22 NOVEMBER 1996 10,646,125 1 D4522 ENRON OIL AND 5 FEBRUARY 1997 TO 7,713,263 2 J. RAY MC DERMOTT 8 GAS INDIA LTD. 19 MAY 1997 THE ASSESSEE MADE DETAILED SUBMISSIONS THAT ONLY CO NTRACT CARRIED OUT DURING THE YEAR WAS CONTRACT NO.4522 AN D DURATION OF THE WORK WAS FOR LESS THAN 9 MONTHS, AND THEREFO RE, ASSESSEE DID NOT HAVE PE (PERMANENT ESTABLISHMENT) IN INDIA DURING THE YEAR UNDER CONSIDERATION. AFTER HEARING THE DETAILED SUBMISSIONS AND PERUSING FACTUAL MATERIAL PLACED ON RECORD, LD. CIT(A) ACCEPTED THE STAND OF THE ASSESSEE AND R EVERSED THAT OF THE AO AND HELD THAT IN VIEW OF ARTICLE 5 ( 2)(I), THE ASSESSEE DID NOT HAVE A PE IN INDIA DURING THE YEAR UNDER CONSIDERATION FOR ANY OF ITS PROJECTS. 3.4. BEING AGGRIEVED, THE REVENUE HAS FILED AN APPEAL BEFORE THE TRIBUNAL, WHEREIN IT HAS BEEN INTER-ALIA CONTENDED IN THE GROUNDS THAT WORKING DURATION FOR ALL THE PROJECT/A CTIVITIES SHOULD BE AGGREGATED FOR COMPUTING THE THRESHOLD LI MIT OF 9 MONTHS, AS PRESCRIBED UNDER THE TREATY. 3.5. DURING THE COURSE OF HEARING LD. DR SUBMITTED THAT AO WAS JUSTIFIED IN HOLDING THAT NUMBER OF DAYS SPENT ON ALL THE PROJECTS SHOULD BE CLUBBED TOGETHER FOR DETERMINATI ON OF PERIOD OF STAY IN INDIA. HE RELIED UPON THE ORDER O F THE AO ON THIS ISSUE. PER CONTRA, LD. COUNSEL POINTED OUT THA T ONLY ONE PROJECT WAS CARRIED OUT DURING THE YEAR I.E. CONTRA CT NO.D4522. IT WAS FURTHER BROUGHT TO OUR NOTICE THAT SIMILAR I SSUE HAD CAME UP BEFORE THE TRIBUNAL IN IMMEDIATE PROCEEDING YEAR I.E. A.Y. 1997-98 WHEREIN THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF J. RAY MC DERMOTT 9 THE ASSESSEE BY THE TRIBUNAL. HE THEREFORE, REQUEST ED THAT APPEAL OF THE REVENUE SHOULD BE DISMISSED. IN REPLY , LD. DR FAIRLY SUBMITTED THAT THE ISSUE INVOLVED IN THE APP EAL FILED BY THE DEPARTMENT WAS COVERED BY THE JUDGMENT OF THE T RIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 1997-98. 3.6. WE HAVE GONE THROUGH THE ORDER OF THE LOWER AUTHOR ITIES, THE ORDER OF THE TRIBUNAL FOR A.Y. 1997-98 AS WELL AS SUBMISSIONS MADE BY BOTH THE SIDES BEFORE US. IT IS NOTED BY US THAT SIMILAR ISSUE CAME UP BEFORE THE TRIBUNAL I N ASSESSEES OWN CASE FOR A.Y. 1997-98 WHEREIN THE TRIBUNAL DECI DED THIS ISSUE IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 22 .03.2010 IN ITA NO.8084/MUM/2004. 3.7. AFTER DISCUSSING THE LAW AND FACTS OF THE CASE IN DETAIL IN THIS REGARD, IT WAS HELD BY THE TRIBUNAL THAT FOR T HE PURPOSE OF COMPUTATION OF NUMBER DAYS FOR EXAMINING THRESHOLD LIMIT OF 9 MONTHS, EACH OF THE BUILDING SITE OR CONSTRUCTION, OR ASSEMBLY PROJECT OR SUPERVISORY ACTIVITIES IN CONNECTION THE REWITH IS TO BE VIEWED INDEPENDENTLY ON STAND-ALONE BASIS AND TH US, NO AGGREGATION IS REQUIRED TO BE DONE FOR COMPUTING NU MBER OF DAYS. THE RELEVANT PARA OF THE ITATS ORDER IS REPR ODUCED BELOW: IN VIEW OF THE ABOVE TREATY PROVISIONS, IT IS UNAM BIGUOUS THAT A PE REFERS TO A FIXED PLACE OF BUSINESS THROU GH WHICH BUSINESS OF THE ENTERPRISE IS WHOLLY OR PARTL Y CARRIED ON, AND INCLUDES, INTER ALIA, 'A BUILDING SITE OR CONSTRUCTION OR ASSEMBLY PROJECT, OR SUPERV ISORY ACTIVITIES CONNECTED THEREWITH, WHERE SUCH SITE, PR OJECT OR SUPERVISORY ACTIVITY CONTINUE FOR A PERIOD OF MORE THAN NINE MONTHS.'. IN A WAY, THUS, THE PERMANENCE TEST J. RAY MC DERMOTT 10 FOR EXISTENCE OF A PE STANDS SUBSTITUTED, TO THIS LIMITED EXTENT, BY A DURATION TEST FOR CERTAIN TYPE S OF BUSINESS ACTIVITIES, I.E. BUILDING CONSTRUCTION, CONSTRUCTION OR ASSEMBLY PROJECT, OR SUPERVISORY ACTIVITY CONNECTED THEREWITH. THERE IS ALSO A VALID , AND MORE HOLISTIC VIEW OF THE MATTER, THAT THIS DURATION TEST DOES NOT REALLY SUBSTITUTE PERMANENCE TEST BUT ONLY LIMITS THE APPLICATION OF GENERAL PRINCIPLE OF PERMANENCE TEST IN AS MUCH AS UNLESS THE ACTIVITIES OF THE SPECIFIED NATURE CROSS THE THRESHOLD TIME LIMIT OF NINE MONTHS, EVEN IF THERE EXISTS A PE UNDER THE GENERAL RULE OF ARTICLE 5(1), IT WILL BE OUTSIDE THE AMBIT OF DEFINITION OF PE BY TH E VIRTUE OF ARTICLE 5(2)(I). BE THAT AS IT MAY, EVEN A PLAIN READING OF ARTICLE 5(2)(I) WOULD SHOW THAT, FOR THE PURPOSE OF COMPUTING THE THRESHOLD TIME LIMIT, WHAT IS TO BE TAKEN INTO ACCOUNT IS ACTIVITIES OF A FOREIGN ENTERPRISE ON A PARTICULAR SITE OR A PARTICULAR PROJECT, OR SUPERVISORY ACTIVITY CONNECTED THEREWIT H, AND NOT ON ALL THE ACTIVITIES IN A TAX JURISDICTION AS WHOLE. IT IS IMPORTANT TO BEAR IN MIND THE FACT THAT THE E XPRESSIONS USED IN THE RELEVANT DEFINITION CLAUSE ARE IN SINGU LAR, AND THERE IS NO SPECIFIC MENTION ABOUT AGGREGATING THE NUMBER OF DAYS SPENT ON VARIOUS SITES, PROJECTS OR ACTIVITIES, IN OTHER WORDS, EACH OF THE BUILDING SI TE, CONSTRUCTION PROJECT, ASSEMBLY PROJECT OR SUPERVISORY ACTIVITIES IN CONNECTION THEREWITH IS T O BE VIEWED ON STANDALONE BASIS. BROADLY, THE UNDERLYING RATIONALE OF THIS APPROACH IS THAT VARIOUS BUSINESS ACTIVITIES PERFORMED BY ONE AND SAME ENTERPRISE, NONE OF WHICH CONSTITUTES A PE, CANNOT LEAD TO A PE, IF COMBINED. IN OUR HUMBLE UNDERSTANDING, THE VERY CONCEPTUAL FOUNDATION OF THIS APPROACH RESTS ON THE ASSUMPTION THAT VARIOUS BUSINESS ACTIVITIES OF THE ENTERPRISE IN DIFFERENT LOCATIONS ARE NOT SO INEXTRICABLY INTERCONNECTED THAT THESE ARE ESSENTIALLY REQUIRED TO BE VIEWED AS A COHERENT WHOLE. IN A TYPICAL BUILDING SITE, ASSEMBLY OR INSTALLATION PROJECT, OR SUPERVISORY ACTIVITIES IN CONNECTION THEREWITH, EACH OF SITE OR PROJECT IS AN INDEPENDENT UNIT, AND THE APPROACH TO THESE TYPES OF PES RECOGNIZE THIS NORMAL BUSINESS J. RAY MC DERMOTT 11 PRACTICE. THE UNAMBIGUOUS PRINCIPLE, UNDERLYING THIS APPROACH, SEEMS TO BE TO VIEW THESE BUSINESS ACTIVITIES AT DIFFERENT LOCATIONS ON STANDALONE BAS IS. IT IS ALSO INTERESTING TO NOTE THAT IN CERTAIN TREATIE S ENTERED INTO BY INDIA, THERE IS A SPECIFIC DEPARTUR E FROM THIS RULE AS EVIDENT FROM THE WORDINGS USED IN DEFINITION CLAUSES OF CORRESPONDING PES. TAKE FOR EXAMPLE, ARTICLE 5(2)(K) OF INDIA AUSTRALIA TAX TREATY , WHICH STATES THAT 'THE TERM 'PERMANENT ESTABLISHMENT' SHALL EXCLUDE ESPECIALLY .... A BUILDING SITE OR CONSTRUCTION, INSTALLATION OR ASSEMBLY PROJECT, OR SUPERVISORY ACTIVITIES IN CONNECTION WITH SUCH A SITE OR PROJECT, WHERE THAT SITE OR PROJECT EXISTS OR THOSE ACTIVITIES ARE CARR IED ON (WHETHER SEPARATELY OR TOGETHER WITH OTHER SITES, PROJECTS OR ACTIVITIES) FOR MORE THAN SIX MONTHS.' (EMPHASIS SUPPLIED BY US BY UNDERLINING). IN THE CA SE OF INDIA THAILAND TAX TREATY, THE DEFINITION FOR TH IS TYPE OF PERMANENT ESTABLISHMENT, WHICH FINDS PLACE IN ARTICLE 5 (2)(H) OF THE SAID TREATY, IS WORDED A S A BUILDING SITE OR CONSTRUCTION OR ASSEMBLY PROJECT, OR SUPERVISORY ACTIVITIES IN CONNECTION THEREWITH, WHERE SUCH SITE, PROJECT OR ACTIVITY CONTINUES FOR THE SAME OR A CONNECTED PROJECT FOR A PERIOD OF PERIODS AGGREGATING TO MORE THAN 183 DAYS (EMPHASIS SUPPLIED BY US BY UNDERLINING). SIMILAR ARE THE PROVISIONS IN INDIA'S TAX TREATIES WITH AUSTRIA, BELGIUM, BULGARIA, CANADA, CHINA, DENMARK, ITALY, NEW ZEALAND, NORWAY, SPAIN, TURKEY AND USA. IN ALL THESE CASES, THE RELEVANT PE CLAUSES ARE SO WORDED THAT THERE IS A SPECIFIC MENTION FOR APPLICATION OF AGGREGATION PRINCIPLE ON ALL, OR EVEN CONNECTED, SI TES PROJECTS OR ACTIVITIES FOR COMPUTATION OF THRESHOLD DURATION TEST. EVEN SUCH AN AGGREGATION, WHEN APPLICABLE, WOULD REQUIRE EXCLUSION OF DOUBLE COUNTING OF DAY WHEN MORE THAN ONE SITE OR PROJECT EXISTS ON A DAY, OR WHEN WORK IS CARRIED OUT AT TWO OR MOR E DIFFERENT PLACES ON A DAY, AS MULTIPLE COUNTING OF COMMON DAYS WOULD LEAD TO AN ABSURDITY IN AS MUCH AS WHEN WORK IS CARRIED ON FIVE SITES TOGETHER FOR ONE HUNDRED DAYS EACH, SUCH A COMPUTATION WILL LEAD TO FIVE HUNDRED DAYS IN A YEAR WHICH IS AN J. RAY MC DERMOTT 12 IMPOSSIBILITY. THEREFORE, WHEN DEFINITION CLAUSE SPECIFICALLY PROVIDES FOR AGGREGATION OF TIME SPENT ON VARIOUS SITES, PROJECTS OR ACTIVITIES, THE SUM T OTAL OF THE TIME SPENT ON SUCH SITES, PROJECTS OR ACTIVI TIES, EXCEPT FOR PARALLEL COUNTING OF DAYS, IS TO BE TAKE N INTO ACCOUNT FOR APPLYING THE THRESHOLD TIME LIMIT. HOWEVER, WHEN AGGREGATION IS NOT SPECIFICALLY PROVIDED FOR IN THE RELEVANT PE DEFINITION CLAUSE, AS IN THE PRESENT CASE, NORMALLY IT CANNOT BE OPEN TO US TO INFER THE APPLICATION OF AGGREGATION PRINCIPLE. 3.8. THUS, THOUGH A CLEAR PRINCIPLE WAS LAID DOWN BY TH E TRIBUNAL IN THE AFORESAID ORDER, BUT SINCE FACTS WE RE NOT PROPERLY THRASHED OUT BY THE LOWER AUTHORITIES IN A .Y. 1997-98 IN THE FIRST ROUND, THEREFORE THE MATTER WAS SENT B ACK TO THE FILE OF LD. CIT(A) FOR EXAMINATION OF FACTS. ACCORD INGLY, LD. CIT(A) DECIDED THE MATTER AFRESH VIDE HIS ORDER DAT ED 27.01.2011, WHEREIN HE HELD THAT IF ALL THE PROJECT S OF THE ASSESSEE ARE EXAMINED INDEPENDENTLY, EACH OF THEM H AD WORK DURATION OF LESS THAN 9 MONTHS AND ACCORDINGLY IT WA S HELD THAT ASSESSEE DID NOT HAVE A PE IN INDIA. 3.9. THE REVENUE FILED AN APPEAL AGAINST THE ORDER OF L D. CIT(A). THE TRIBUNAL VIDE ORDER DATED 12.10.2012 IN ITA NO.2089/MUM/2011 FOR A.Y. 1997-98 UPHELD THE ORDER OF THE LD. CIT(A), ON FACTS ALSO. THUS, THE CLEAR POSITION EMERGING FROM THE ORDERS OF THE TRIBUNAL IN ASSESSEES OWN C ASE IS THAT EACH PROJECT OF THE ASSESSEE HAS TO BE CONSIDERED S EPARATELY FOR COMPUTING NUMBER OF DAYS OF THE WORK DURATION. 3.10. COMING BACK TO THE FACTS OF THE YEAR BEFORE US, IT IS NOTED THAT ONLY ONE PROJECT WAS CARRIED OUT DURING THE YEAR I.E. J. RAY MC DERMOTT 13 CONTRACT NUMBER D4522, THE DURATION OF WHICH WAS FO R 3 MONTHS ONLY. THUS, IN VIEW OF LEGAL POSITION AS HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE AS W ELL AS ON THE FACTS OF THE YEAR BEFORE US, WE FIND THAT THE A SSESSEE HAD NO PE IN INDIA IN THE YEAR UNDER CONSIDERATION IN T ERMS OF ARTICLE 5(2)(I) OF THE ACT INDO-MAURITIUS TREATY. T HUS, WE DO NOT FIND ANY FORCE IN THE GROUND RAISED BY THE REVENUE AND UPHOLD THE FACTUAL FINDINGS OF LD. CIT(A), RESPECTFULLY FO LLOWING THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 1997-98. THUS, GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 3.11. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. NOW WE SHALL TAKE UP ASSESSEES APPEAL IN ITA NO.4434/MUM/2002 FOR A.Y. 1998-99: THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL : 1.1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) [CIT(A)] ERRED IN UPHOLDING THE ACTION OF THE ASSES SING OFFICER (AO) THAT THE INDIA LIAISON OFFICE OF MCDER MOTT ETPM EAST INC., A SEPARATE LEGAL ENTITY, CONSTITUTE D A PERMANENT ESTABLISHMENT OF YOUR APPELLANT IN INDIA. ON THE FACTS AND CIRCUMSTANCE OF THE CASE, THE CIT( A) OUGHT TO HAVE HELD THAT YOUR APPELLANTS HAVE NO PERMANENT ESTABLISHMENT IN INDIA. 1.2 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT (A) OUGHT TO HAVE HELD THAT NO INCOME COULD BE ATTRIBUT ED TO THAT PERMANENT ESTABLISHMENT, I.E. THE INDIAN LIAIS ON OFFICE. 2. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE CIT(A) ERRED IN HOLDING THAT INSURANCE RECEIPTS WERE CONNECTED WITH THE BUSINESS OF YOUR APPELLANT IN IN DIA. AND HENCE TAXABLE UNDER SECTION 44BB OF THE INCOME- TAX ACT. J. RAY MC DERMOTT 14 3. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO IN LEVYING TAX ON MISCELLANEOUS INCOME. 4. GROUND NO.1.1: IN THIS GROUND, THE ASSESSEE IS AGGRIEVED WITH THE ACTION OF LD. CIT(A) IN UPHOLDING THE ACTI ON OF THE AO THAT INDIAN LIAISON OFFICE OF M/S MCDERMOTT ETPM EA ST INC., DUBAI, A SEPARATE LEGAL ENTITY, CONSTITUTED A PERMANENT ESTABLISHMENT OF THE ASSESSEE IN INDIA . 4.1. THE BRIEF FACTS IN THIS REGARD ARE THAT A SURVEY O PERATION U/S 133A OF THE ACT WAS CARRIED OUT BY THE DCIT (T DS -1 MUMBAI) AT THE OFFICE OF DUBAI, COMPANY ON 10 TH AUGUST 2000, LOCATED AT 412-413, MIDAS, SAHAR, PLAZA, ANDHERI (E ), MUMBAI. IT WAS CONCLUDED BY THE AO ON THE BASIS OF SURVEY R EPORT THAT LIAISON OFFICE OF THE DUBAI COMPANY WAS KEPT BY THE ASSESSEE COMPANY FOR ITS BUSINESS. THE FACTS OF THE AO WERE BASED UPON THE BASIS OF SURVEY REPORT CLAIMED TO BE PREPARED O N THE BASIS OF DOCUMENTS FOUND DURING THE COURSE OF SURVEY. ACC ORDING TO THE AO, AT THE TIME OF SURVEY, NO PAPER/EVIDENCE OF ACTIVITY OF DUBAI COMPANY WAS FOUND AT THE SAID PREMISES. THE P APERS AND DOCUMENTS WHICH WERE FOUND THERE BELONGED TO TH E ASSESSEE COMPANY. AT THE TIME OF SURVEY, THE STATEM ENTS OF EMPLOYEES AND OTHER PERSONS PRESENT AT THE PREMISES WERE RECORDED BY THE SURVEY PARTY. THE AO STATED THAT RE ADING OF THE STATEMENTS SUGGESTED THAT OFFICE PREMISES WERE USED EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE COMPAN Y, AND ALL THE FILES AND DOCUMENTS FOUND AT THE OFFICE PREMISE S PERTAIN TO THE PROJECT UNDERTAKEN BY THE ASSESSEE AT VARIOUS S ITES. THE J. RAY MC DERMOTT 15 SURVEY TEAM RECORDED THE STATEMENT INTER-ALIA OF MR. ARUNABHA SEN (COUNTRY MANAGER), ARUN TARKAR (AREAS LOGISTIC MANAGER), MR. LAWRENCE RODRIGUES (ACCOUNTANT). ON THE BASIS O F THESE STATEMENTS AND PAPERS FOUND DURING THE COURSE OF SU RVEY IN THE FORM OF INVOICES, CORRESPONDENCE, LEASE OF EMPL OYEES ETC., IT WAS CONCLUDED BY THE AO THAT IT WAS LIAISON OFFI CE OF THE COMPANY WHICH WAS INVOLVED IN THE FULL-FLEDGE BUSIN ESS ACTIVITIES, AND THEREFORE IT CONSTITUTED PE OF THE ASSESSEE. 4.2. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE LD. CIT(A), WHEREIN AFTER ANALYZING ASSESSMENT ORDE R AND SUBMISSIONS OF THE ASSESSEE IT WAS HELD BY LD. CIT( A) THAT THE SAID OFFICE WAS EXCLUSIVELY USED FOR THE PROJECTS U NDERTAKEN BY THE ASSESSEE COMPANY. IT WAS FURTHER HELD THAT MAUR ITIUS ADDRESS WAS ONLY ON PAPER AS THE ASSESSEE COMPANY D ID NOT HAVE FUNCTIONAL OFFICE IN MAURITIUS. THUS, LD. CIT( A) UPHELD THE FINDINGS OF LD. CIT(A) AND CONFIRMED HIS ACTION BY HOLDING THAT ASSESSEE HAD A PE IN INDIA DURING THE YEAR, AN D ALSO UPHELD THE ACTION OF THE AO IN ASSESSING THE INCOME OF THE ASSESSEE U/S 44BB OF THE ACT, 1961. 4.3. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE TRIBUNAL. 4.4. BEFORE US, MR. KANCHAN KAUSHAL (LD. COUNSEL OF THE ASSESSEE) MADE DETAILED SUBMISSIONS ON THIS ISSUE. IT HAS BEEN SUBMITTED THAT DUBAI COMPANY IS A SEPARATE LEGAL EN TITY AND DOES HAVE A PE IN INDIA AND THEREFORE IT IS ASSESSE D IN INDIA J. RAY MC DERMOTT 16 ACCORDINGLY, AND THERE IS NO DISPUTE ON THAT. IT WA S SUBMITTED THAT THE LOWER AUTHORITIES HAVE MISREAD THE DOCUMEN TS COLLECTED DURING THE COURSE OF SURVEY AND HAVE MISU NDERSTOOD THE FACTS OF THE CASE. IT WAS FURTHER SUBMITTED THA T EVEN AFTER THE INVASIVE ACTION OF SURVEY, THE INCOME TAX DEPAR TMENT COULD NOT FIND ANY DOCUMENT OR ANY OTHER MATERIAL WHICH C OULD SHOW THAT ANY EMPLOYEE/PERSON IN THE SAID OFFICE IN INDI A HAD AUTHORITY TO CONCLUDE THE CONTRACTS. IT WAS SUBMITT ED THAT THE DETAILS OF EMPLOYEES/PERSONS FOUND AT THE OFFICE PR EMISES OF DUBAI COMPANY WOULD SHOW THAT NONE OF THEM WAS QUAL IFIED OR COMPETENT ENOUGH TO MAKE INDEPENDENT DECISIONS F OR NEGOTIATIONS AND CONCLUDING THE CONTRACTS ON BEHALF OF THE ASSESSEE COMPANY. HE TOOK US THROUGH THE EACH AND E VERY DOCUMENT FOUND DURING THE COURSE OF SURVEY WHICH HA S BEEN CONSIDERED BY THE AO TO HOLD THAT THE SAID PREMISES WERE USED AS FULLY FUNCTIONAL OFFICE OF THE ASSESSEE COMPANY, AND SUBMITTED THAT THE AO AS WELL AS LD. CIT(A) HAVE NO T PROPERLY GONE THROUGH THESE DOCUMENTS. IT WAS FURTHER SUBMIT TED BY HIM THAT ACTIVITIES DONE BY THE ASSESSEE IN THIS OF FICE WERE OF THE NATURE OF BACK UP AND AUXILIARY SERVICES, AND S UCH SERVICES WERE SPECIFICALLY EXCLUDED IN TERMS OF ART ICLE 5(3)(E). HE PLACED RELIANCE UPON THE JUDGMENT OF HONBLE DEL HI HIGH COURT IN THE CASE OF U.A.E. EXCHANGE CENTRE LTD. VS . UOI 313 ITR 94 (DEL.) AND ALSO UPON THE JUDGMENT OF HON BLE SUPREME COURT IN THE CASE OF DIT VS. MORGAN STANLEY 292 ITR 416 (SC). HE ALSO SUBMITTED THAT SURVEY OPERATION W AS DONE U/S 133A WHICH IS DISTINCT FROM THE ACTION DONE U/S 132(4) IN TERMS OF EVIDENTIARY VALUE OF THE DOCUMENTS FOUND D URING J. RAY MC DERMOTT 17 THESE OPERATIONS. IT WAS SUBMITTED THAT IN CASE OF SURVEY, IF ANY MATERIAL IS FOUND, UNLESS AND UNTIL THE SAID MA TERIAL IS SUBSTANTIATED BY THE AO, IT CANNOT BE USED AGAINST THE ASSESSEE, UNLIKE THE MATERIAL FOUND DURING THE COUR SE OF SEARCH CARRIED OUT U/S 132(4). IN SUPPORT OF HIS AR GUMENTS, HE FURTHER PLACED RELIANCE UPON THE JUDGMENTS OF HONB LE MADRAS HIGH COURT IN THE CASE OF CIT VS S KHADER KHAN SON 300 ITR 157 (MAD) WHICH WAS SUBSEQUENTLY AFFIRMED BY THE HO NBLE SUPREME COURT OF INDIA VIDE ORDER DATED 20 TH SEPTEMBER 2012 REPORTED IN 210 TAXMAN 248 (SC). 4.5. PER CONTRA, LD. DR ALSO TOOK US THROUGH VARIOUS DOCUMENTS FOUND DURING THE COURSE OF SURVEY AND SUB MITTED THAT THE ASSESSEES CASE FALLS UNDER ARTICLE 5(2)(C ) OF THE TREATY; HE DREW OUR ATTENTION UPON VARIOUS DOCUMENTS FOUND DURING THE COURSE OF SURVEY TO SHOW THAT THE ASSESSEE WAS CARRYING OUT SUBSTANTIVE BUSINESS OPERATIONS FROM THE SAID O FFICE PREMISES. HE RELIED UPON THE JUDGMENT OF HONBLE KA RNATAKA HIGH COURT IN THE CASE OF JEBON CORPORATION INDIA L IAISON OFFICE VS. CIT 245 CTR 300. 4.6. IN REJOINDER, THE ASSESSEE HAS DISTINGUISHED THE J UDGMENT OF JEBON CORPORATION INDIA LIAISON OFFICE (SUPRA) O N FACTS AND SUBMITTED THAT THE DOCUMENTS IMPOUNDED DURING THE C OURSE OF SURVEY DO NOT PROVE AT ALL CARRYING OUT OF ANY S UBSTANTIVE BUSINESS, AND AT THE MOST, SAID OFFICE CAN BE SAID TO BE A PLACE FOR SUPPLY OF INFORMATION AND DOING SIMILAR ACTIVIT IES WHICH HAVE PREPARATORY OR AUXILIARY CHARACTER FOR THE ENT ERPRISE. IT J. RAY MC DERMOTT 18 HAS BEEN FURTHER SUBMITTED BY HIM BEFORE CONCLUDING HIS ARGUMENTS THAT THE ADMITTED CASE OF THE AO WAS THAT THE ASSESSEES CASE FALLS UNDER ARTICLE 5(2)(I), THEREB Y, CONSTITUTING PE ON THE BASIS OF CARRYING OUT OF WORK AT BUILDING SITE OR CONSTRUCTION PROJECT ETC., AND THEREFORE, SINCE THE ASSESSEES CASE SPECIFICALLY FALLS IN THE SAID ARTICLE, IT EXC LUDES THE CASE OF THE ASSESSEE FROM BEING INCLUDED UNDER ANY OTHER AR TICLE, AND THEREFORE, THE CASE OF THE ASSESSEE CAN NOT FALL UN DER ARTICLE 5(2)(C) WHICH DETERMINES THE PE ON THE BASIS OF EXI STENCE OF OFFICE. IN SUPPORT OF HIS ARGUMENTS, LD. COUNSEL RE LIED UPON THE JUDGMENT OF DCIT V. STOCK ENGINEERING AND CONTRACTORS BV 32 SOT 249 (ITAT MUMBAI) WHEREIN IT WAS HELD THAT IF TWO CLAUSES OF THE ARTICLE ARE APPLICA BLE UPON THE ASSESSEE IN TWO FACTUAL SITUATIONS, THEN THE ONE WH ICH IS MORE BENEFICIAL TO THE ASSESSEE WOULD BE APPLICABLE. IT WAS FURTHER SUBMITTED BY HIM THAT IN ASSESSEES OWN CASE, HONB LE TRIBUNAL IN ASSESSMENT A.Y. 1997-98 INTER-ALIA HELD THAT EVEN IF THERE EXISTS A PE IN THE CASE OF ASSESSEE UNDER GENERAL RULE OF ARTICLE 5(1), IT WILL BE OUTSIDE THE AMBIT OF DE FINITION OF PE BY VIRTUE OF ARTICLE 5(2)(I). IT WAS SUBMITTED THAT SI NCE ASSESSEES CASE HAS BEEN HELD TO BE COVERED BY THE TRIBUNAL UN DER ARTICLE 5(2)(I), THEREFORE, IT CANNOT SIMULTANEOUSLY FALL I N ARTICLE 5(2)(C), AS CLAIMED BY THE AO. 4.7. WE HAVE GONE THROUGH THE SUBMISSIONS MADE BY BOTH THE SIDES. WE HAVE ALSO GONE THROUGH THE DOCUMENTS IMPO UNDED DURING THE COURSE OF SURVEY. BEFORE WE DEAL WITH TH E ALTERNATIVE LEGAL ARGUMENT OF THE LD. COUNSEL THAT WHETHER THE J. RAY MC DERMOTT 19 ASSESSEES CASE CAN SIMULTANEOUSLY FALL IN ARTICLE 5(2)(C), WHEN ASSESSEES CASE HAS ALREADY BEEN HELD TO BE FALLING UNDER ARTICLE 5(2)(I), WE SHALL LIKE TO DEAL WITH AND DIS CUSS HEREUNDER THE DOCUMENTS FOUND DURING THE COURSE OF SURVEY. 4.8. IT IS NOTED THAT THE AO HIMSELF DID NOT GO THROUGH ALL THE DOCUMENTS IMPOUNDED DURING THE COURSE OF SURVEY, BU T BASED HIS DECISION ON THE BASIS OF FACTS BROUGHT ON RECOR D BY WAY OF A GIST/REPORT OF SOME OF THE DOCUMENTS FOUND TO BE RE LEVANT BY THE SURVEY TEAM. BEFORE US ALSO, ONLY GIST/SURVEY T EAMS REPORT HAS BEEN FILED. UNDER THESE CIRCUMSTANCES, WE HAVE NO OTHER OPTION BUT TO EXPRESS OUR OPINION ON THE BASIS OF G IST/REPORT PREPARED BY THE SURVEY OFFICIALS. THE SAID GIST/REP ORT IS ENCLOSED AT PAGES 1 TO 26 OF THE PAPER BOOK. ACCORD ING TO OUR OPINION, PERUSAL OF THESE PAPERS SUGGESTS, THAT THE SE WERE MISCELLANEOUS DOCUMENTS WHICH WERE EXCHANGED BY PER SONS WHO WERE COORDINATING THE ACTIVITIES CARRIED OUT AT THE SITE. THERE WAS A LIST OF MESSAGES WHICH WERE RECEIVED AN D PASSED ON FURTHER WHICH INCLUDED FAX MESSAGES OR OTHER RAD IO MESSAGES. THERE IS ALSO A LIST OF THE EMPLOYEES WHO WERE WORKING IN THE PROJECT OFFICE. ACCORDING TO THE AO, IT SHOWS THAT THIS OFFICE WAS USED FOR THE APPOINTMENT AND R ECRUITMENT OF EMPLOYEES. 4.9. WE HAVE GONE THROUGH THE GIST/ SURVEY REPORT PREPA RED BY THE SURVEY TEAM WITH REGARD TO THE DOCUMENTS FOUND DURING THE COURSE OF SURVEY. IN OUR OPINION, NONE OF THE D OCUMENTS SHOWS THAT ANY SUBSTANTIVE BUSINESS WAS DONE FROM T HE SAID J. RAY MC DERMOTT 20 OFFICE. WE HAVE ALSO ANALYSED EACH AND EVERY DOCUME NT UPON WHICH OUR ATTENTION WAS DRAWN BY THE LD. CIT-DR. IT IS NOTED THAT AT PAGE NO.3 OF THE DEPARTMENTAL PAPER BOOK (D PB), THERE IS AN ITEM NO.46 DESCRIBED AS FAXING OF DAILY PROGR ESS REPORT OF DB-6. SIMILARLY, THERE IS ITEM NO. 51 DESCRIBED AS AN INFORMATION REGARDING MOVEMENT OF PERSONS FROM MUMB AI TO PROJECT SITE AND VICE-VERSA. WE FIND THAT THESE DOC UMENTS WERE PREPARED FOR THE PURPOSE OF FACILITATING WORK AT PR OJECT SITE. SIMILARLY, AT PAGE NO.6 OF DPB, THERE ARE ITEMS NOS . 20 TO 22 DESCRIBED AS CORRESPONDENCE BETWEEN MR. ARUN TARKAR , AND MR. D. ANJAIH, OF NARMADA OFFSHORE, BY FAX NO. 4033 055 REGARDING OCTROI DUTY PAYMENT. WE HAVE GONE THROUGH VARIOUS OTHER DOCUMENTS ALSO, ON THE BASIS OF WHICH THE IMP RESSION GATHERED BY US IS THAT THESE DOCUMENTS HAVE BEEN MA INTAINED IN ROUTINE WHILE PROVIDING BACK OFFICE SUPPORT SERV ICES OR COORDINATION/FACILITATING POINT OR SERVICES OF AUXI LIARY NATURE. 4.10. THE REVENUE HAS EMPHASIZED UPON THE STATEMENT OF T HE PERSONS RECORDED BY THE SURVEY TEAM WHO WERE AVAILA BLE AT THE SAID OFFICE PREMISES. BEFORE WE DEAL WITH THEIR STA TEMENTS, WE FIND IT APPROPRIATE TO DESCRIBE HEREUNDER THE QUALI FICATIONS OF THESE PERSONS AND ROLES PERFORMED BY THEM, AS NARRA TED BEFORE US: NAME COMPETENCE ROLE PERFORMED ARUN TARKAR CERTIFICATE OF PROFICIENCY IN COMMUNICATION HE WAS A LOGISTIC MANAGER AND HIS WORK INVOLVED OBTAINING CLEARANCE, COORDINATION WITH PRINCIPAL IN CONNECTION WITH LOGISTIC REQUIREMENT AND J. RAY MC DERMOTT 21 COORDINATION WITH SHIPPING AGENTS LAWRENCE RODRIGUES ADMINISTRATION HIS WORK INVOLVED ARRANGING FOR MEETINGS, HOTEL ARRANGEMENTS, AIR TICKET BOOKING, PAYMENT OF ELECTRICAL MAINTENANCE AND TELEPHONE BILLS ETC. RAVI KUMAR CLERK HE WAS A RADIO ROOM CLERK, HIS WORK INVOLVED SENDING AND RECEIVING FAXES, MAINTAINING FAX FILES TALKING ON RADIO, TYPING AND PAPER FILING ETC. ARUNABHA SEN COUNTRY MANAGER OF MMEI ARUNABHA SEN WAS NOT INVOLVED IN ANY MANNER IN THE EXECUTION OF THE CONTRACT. ARUNABHA SEN WAS STATIONED IN JEBEL ALI (DUBAI) AND HIS PERIOD OF STAY IN INDIA FOR A.Y. 1998-99 IS 27 DAYS (PAPER BOOK-I AT PAGE 133). FROM THE ABOVE PARTICULARS, IT IS CLEARLY NOTED THA T THE WORK PERFORMED BY THESE PERSONS WAS OF THE NATURE OF PRO VIDING BACK OFFICE OPERATIONS AND SUPPORT SERVICES. NOTHIN G HAS BEEN BROUGHT BEFORE US TO SHOW THAT SERVICES PROVIDED BY THESE PERSONS WERE IN ANY MANNER OF A SUBSTANTIVE NATURE WHICH COULD BE DESCRIBED AS PART OF DECISION MAKING PROCE SS. 4.11. NOW, WE SHALL DEAL WITH THE STATEMENTS RECORDED BY THE SURVEY TEAM WHICH HAS BEEN VEHEMENTLY RELIED UPON B Y THE LD. DR BEFORE US. WE HAVE GONE THROUGH ALL THE STAT EMENTS AND VARIOUS QUESTIONS AND REPLIES GIVEN BY THE AFOR ESAID PERSONS. THE COLLECTIVE READING OF VARIOUS REPLIES GIVEN BY J. RAY MC DERMOTT 22 THESE PERSONS SUGGEST THAT THE WORK WHICH WAS BEING DONE FROM THIS OFFICE WAS THAT OF PROVIDING BACK OFFICE SUPPORT AND COORDINATION SERVICES. THE IMMEDIATE REFERENCE CAN BE MADE TO THE REPLY GIVEN IN RESPONSE TO QUESTION NO. 36 BY M R. ARUN TARKAR, WHEREIN HE EXPRESSLY MENTIONED THAT COORDIN ATION AND LIAISONING WAS DONE FROM THIS OFFICE. THE QUESTION PUT TO HIM AND REPLY GIVEN BY HIM ARE REPRODUCED HEREUNDER FOR THE SAKE OF READY REFERENCE: Q.NO.36. DO YOU AGREE WITH ME THAT MUMBAI OFFICE I .E. 412-413, MIDAS, SAHAR PLAZA COMPLEX, BELONG TO/ARE EMPLOYEE OF J RAY MC DERMOTT MIDDLE EAST INC. PREVI OUSLY KNOWN AS MC DERMOTT ETPM, EAST, INC. BUT THE SAME I S BEING USED TO FOR THE PROJECTS OF J RAY MC DERMOTT MIDDLE EAST (INDIAN OCEAN) LTD. REPLY; YES, THE CO-ORDINATION AND LIASIONING IS BEING DONE THROUGH THIS OFFICE. (EMPHASIS SUPPLIED) 4.12. WE HAVE GONE THROUGH SUBMISSIONS OF ALL OTHER PERS ONS ALSO. WHAT WE HAVE BEEN ABLE TO GATHER FROM THE DOC UMENTS IMPOUNDED DURING THE COURSE OF SURVEY AND THE INFOR MATION GATHERED 133(6) AND 131 IS THAT IMPUGNED PREMISES W ERE USED AS PROJECT OFFICE OF THE ASSESSEE COMPANY FOR PROVI DING REQUISITE AUXILIARY SERVICES IN THE NATURE OF BACK OFFICE SUPPORT SERVICES. IT IS NOTED THAT DESPITE CARRYING OUT AN INVASIVE ACTION OF SURVEY, NOTHING COULD BROUGHT ON RECORD B Y THE DEPARTMENT TO SHOW THAT WHETHER ANY CONTRACTS WERE NEGOTIATED AND CONCLUDED BY THE AFORESAID TEAM OF E MPLOYEES IN INDIA NOR ANY SUCH DOCUMENTS COULD BE BROUGHT ON RECORD TO SHOW THAT THE SAID OFFICE IN INDIA WAS IN THE DE CISION MAKING PROCESS OR INVOLVED IN DOING SUBSTANTIVE BUS INESS IN J. RAY MC DERMOTT 23 ANY OTHER MANNER. IN THIS REGARD, WE FIND THAT ARTI CLE 5(3) OF THE INDO- MAURITIUS TREATY CLEARLY LAYS DOWN THE SI TUATIONS WHERE A SET UP SHALL NOT CONSTITUTE PERMANENT ESTABLISHMENT. THE SAID PARA IS REPRODUCED HEREUNDER: 3. NOTWITHSTANDING THE PRECEDING PROVISIONS OF THI S ARTICLE, THE TERM 'PERMANENT ESTABLISHMENT' SHALL BE DEEMED NOT TO INCLUDE: (A) THE USE OF FACILITIES SOLELY FOR THE PURPOSE OF STO RAGE OR DISPLAY OF 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 OR DISPLAY ; (C) THE MAINTENANCE OF A STOCK OF GOODS OR MERCHANDISE BELONGING TO THE ENTERPRISE SOLELY FOR THE PURPOSE OF PROCESSING BY ANOTHER ENTERPRISE ; (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 (I) FOR THE PURPOSE OF ADVERTISING, (II) FOR THE SUPPLY OF INFORMATION, (III) FOR SCIENTIFIC RESEARCH, OR (IV) FOR SIMILAR ACTIVITIES, WHICH HAVE A PREPARATORY OR AUXILIARY CHARACTER FOR THE ENTERPRISE. 4.13. THE PERUSAL OF THE ABOVE PARA SHOWS THAT IT CLEARL Y LAYS DOWN THAT ANY FIXED PLACE MAINTAINED BY THE ASSESSE E FOR THE PURPOSE OF SUPPLY OF INFORMATION OR FOR SIMILAR ACT IVITIES WHICH HAS A PREPARATORY OR AUXILIARY CHARACTER FOR THE EN TERPRISE SHALL NOT CONSTITUTE A PERMANENT ESTABLISHMENT. ON THIS ISSUE, WE CAN ALSO HAVE SUPPORT OF HONBLE SUPREME COURT IN THE CASE OF DIT VS. MORGAN STANLEY (SUPRA); RELEVAN T PORTION OF THE SAID JUDGMENT IS REPRODUCED BELOW: J. RAY MC DERMOTT 24 IN OUR VIEW, THE SECOND REQUIREMENT OF ARTICLE 5(1 ) OF 'DTAA IS NOT SATISFIED AS REGARDS BACK OFFICE FUNCTIONS. WE HAVE EXAMINED THE TERMS OF THE AGREEMENT ALONG WITH THE ADVANCE RULING APPLICATION MADE BY MSCO INVITING THE AAR TO GIVE ITS RULING. IT IS CLEAR FROM READING OF THE ABOVE AGREEMENT/APPLICATION THAT MSAS IN INDIA WOULD BE ENGAGED IN SUPPORTING THE FRONT OFFICE FUNCTIONS OF MSCO IN FIXED INCOME AND EQUITY RESEARCH AND IN PROVIDING IT ENABLED SERVICES SUCH AS DATA PROCESSING SUPPORT CENTRE AND TECHNICAL SERVICES AS ALSO RECONCILIATION OF ACCOUNTS. IN ORDER TO DECIDE WHETHER A P.E. STOOD CONSTITUTED, ONE HAS TO UNDERTAKE WHAT IS CALLED AS A FUNCTIONAL AND FACTUAL ANALYSIS OF EACH OF THE ACTIVITIES TO BE UNDERTAKEN BY AN ESTABLISHMENT. IT IS FROM THAT POI NT OF VIEW, WE ARE IN AGREEMENT WITH THE RULING OF THE AAR THAT IN THE PRESENT CASE ARTICLE 5(1) IS NOT APPLICABLE AS THE SAID MSAS WOULD BE PERFORMING IN INDIA ONLY BACK OFFICE OPERATIONS. THEREFORE TO THE EXTENT OF THE ABOVE BACK OFFICE FUNCTIONS THE SECON D PART OF ARTICLE 5(1) IS NOT ATTRACTED. 4.14. SIMILAR VIEW HAS BEEN EXPRESSED BY THE HONBLE DEL HI HIGH COURT IN THE CASE OF U.A.E. EXCHANGE CENTRE LT D. VS UNION OF INDIA (SUPRA), RELEVANT PORTION OF THE JUD GMENT IS REPRODUCED BELOW: THE LIABILITY TO TAX UNDER THE DTAA BETWEEN THE UAE AND INDIA IS GOVERNED BY ARTICLE 7. PARAGRAPH ( 1) OF ARTICLE 7 OF THE DTAA PROVIDES THAT PROFITS OF AN E NTERPRISE OF A CONTRACTING STATE SHALL BE TAXABLE ONLY IN THA T STATE, UNLESS THE ENTERPRISE CARRIES ON BUSINESS, IN THE O THER STATE, THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN. UNDER ARTICLE 5 READ WITH ARTICLE 7, PROFI TS OF ALL ARE LIABLE TO TAX IN INDIA IF AN ENTERPRISE WERE TO CAR RY OIL THROUGH PERMANENT ESTABLISHMENT, MEANING THEREBY FIXED PLACE OF BUSINESS THROUGH WHICH BUSINESS OF A N ENTERPRISE IS WHOLLY OR PARTLY CARRIED ON. UNDER AR TICLE J. RAY MC DERMOTT 25 5(2)(C), AMONGST OTHERS, PERMANENT ESTABLISHMENT IN CLUDES AN OFFICE. HOWEVER, ARTICLE 5(3) WHICH OPENS WITH A NON OBSTANTE CLAUSE, IS ILLUSTRATIVE OF INSTANCES WHERE UNDER THE DTAA VARIOUS ACTIVITIES HAVE BEEN DEEMED AS ONE S WHICH WOULD NOT FALL WITHIN THE AMBIT OF THE EXPRES SION 'PERMANENT ESTABLISHMENT'. ONE SUCH EXCLUSIONARY CL AUSE IS FOUND IN ARTICLE 5(3)(E) WHICH IS: MAINTENANCE O F A FIXED PLACE OF BUSINESS SOLELY FOR THE PURPOSE OF CARRYIN G ON, FOR THE ENTERPRISE, ANY OTHER ACTIVITY OF A PREPARATORY OR AUXILIARY CHARACTER. THE ONLY ACTIVITY OF THE PETIT IONER'S LIAISON OFFICES IN INDIA WAS TO DOWNLOAD INFORMATIO N WHICH WAS CONTAINED IN THE MAIN SERVERS LOCATED IN THE UA E BASED ON WHICH CHEQUES WERE DRAWN IN INDIA WHEREUPON THE CHEQUES WERE COURIERED OR DISPATCHED TO THE BENEFICIARIES IN INDIA, KEEPING IN MIND THE INS TRUCTIONS OF THE NRI REMITTER. SUCH AN ACTIVITY COULD NOT BE ANYTHING BUT AUXILIARY IN CHARACTER. THE INSTANT ACTIVITY WA S IN 'AID' OR 'SUPPORT' OF THE MAIN ACTIVITY. IT FELL WITHIN T HE EXCLUSIONARY CLAUSE. 4.15. THUS, ANALYSIS OF THE FACTS OF THE CASE OF THE ASS ESSEE AND RELEVANT PROVISIONS OF DIFFERENT ARTICLE OF IND O-MAURITIUS TREATY READ WITH THE AFORESAID JUDGMENTS CLEARLY SU GGEST THAT THE OFFICE MAINTAINED BY THE ASSESSEE WAS IN THE FO RM OF AN AUXILIARY UNIT TO PROVIDE BACK UP SUPPORT AND OTHER AUXILIARY SERVICES FOR THE PURPOSE OF MAINTAINING COORDINATIO N AND AID TO THE FUNCTIONING OF THE PROJECT AND THEREFORE IT DOE S NOT CONSTITUTE A PE. 4.16. THE ASSESSEE HAS ALSO RAISED ANOTHER PRELIMINARY L EGAL OBJECTION IN THIS REGARD I.E. ONCE THE CASE OF THE ASSESSEE HAS BEEN INCLUDED IN A PARTICULAR CLAUSE I.E. ARTICLE 5 (2)(I), THEN IT SHALL NOT BE INCLUDED AND CANNOT BE CONSIDERED IN A NY OTHER CLAUSE OF THE SAID ARTICLE FOR THE PURPOSE OF DETER MINATION OF ITS PE. WE HAVE ANALYSED THIS OBJECTION FROM ANOTHE R DIMENSION. THE ADMITTED FACTS ON RECORD ARE THAT TH E ONLY J. RAY MC DERMOTT 26 ACTIVITIES CARRIED OUT BY THE ASSESSEE IN INDIA ARE THROUGH VARIOUS CONSTRUCTION PROJECTS MEANT FOR EXPLORATION AND PRODUCTION OF MINERAL OIL, AND FURTHER ADMITTED FAC TS ARE THAT NO OTHER BUSINESS ACTIVITIES HAVE BEEN CARRIED OUT WHICH COULD BE CALLED AS INDEPENDENT BUSINESS ACTIVITIES YIELDI NG SEPARATE/ INDEPENDENT BUSINESS PROFITS. THUS, THE AFORESAID A CTIVITY OF THE CONSTRUCTION PROJECT NEEDS TO BE CONSIDERED PRI MARILY UNDER ARTICLE 5(2)(I), WHICH READ AS UNDER: (I) A BUILDING SITE OR CONSTRUCTION OR ASSEMBLY PROJECT OR SUPERVISORY ACTIVITIES IN CONNECTION THEREWITH, WHE RE SUCH SITE, PROJECT OR SUPERVISORY ACTIVITY CONTINUES FOR A PERIOD OF MORE THAN NINE MONTHS. 4.17. IT HAS BEEN ALREADY HELD IN THE OWN CASE OF THE AS SESSEE BY THE TRIBUNAL IN A.Y. 2007-08 AND BY THE AO AS WE LL AS LD. CIT(A) IN IMPUGNED YEAR THAT CASE OF THE ASSESSEE H AS TO BE EXAMINED IN ARTICLE 5(2)(I). IN EARLIER YEARS ALSO, WHEREVER THE DURATION OF THE PROJECT HAS EXCEEDED A PERIOD OF 9 MONTHS, THE SAME HAS BEEN TREATED AS PERMANENT ESTABLISHMENT IN INDIA AND ITS CORRESPONDING INCOME HAS BEEN OFFERED TO TA X AND ACCEPTED BY THE AO ALSO. THUS, THERE IS NO DOUBT TH AT THE CASE OF THE ASSESSEE FALLS IN ARTICLE 5(2)(I). NOW, THE NEXT QUESTION THAT ARISES HERE FOR OUR CONSIDERATION IS THAT WHET HER THE CASE OF THE ASSESSEE CAN BE EXAMINED IN ANY OTHER CLAUSE OF ARTICLE 5(2). THE AO HAS SUGGESTED THAT ASSESSEES CASE MAY ALSO FALL SIMULTANEOUSLY UNDER ARTICLE 5(2)(C) DESCRIBED AS OFFICE. 4.18. IN OUR CONSIDERED OPINION, SO LONG AS THE ASSESSEE IS ENGAGED IN INDIA IN THE BUSINESS OF AFORESAID CONST RUCTION J. RAY MC DERMOTT 27 PROJECT ONLY, ITS CASE CAN BE EXAMINED ONLY UNDER ARTICLE 5(2)(I); BECAUSE THAT HAPPENS TO BE THE MOST PROXIM ATE CLAUSE UNDER WHICH IT COULD BE EXAMINED AND HAS BEEN RIGHT LY DONE SO ALL ALONG IN ALL PRECEDING YEARS BY THE REVENUE ALSO. THUS, THE ISSUE OF DETERMINATION OF ITS PE THROUGH ANY OTHER CLAUSE DOES NOT ARISE UNLESS AND UNTIL ANY OTHER ACTIVITY IS TAKEN UP BY THE ASSESSEE WHICH IS HAVING AN INDEPENDENT IDEN TITY OR ECONOMIC SUBSTANCE AND YIELDING SEPARATE BUSINESS P ROFITS. IN OTHER WORDS, IF THE IMPUGNED OFFICE IS FOUND TO B E ENGAGED IN DOING ANY INDEPENDENT BUSINESS LEADING TO EARNING O F SEPARATE INCOME AND PROFIT BASE, ONLY THEN ITS STATUS AS PE COULD BE EXAMINED ARTICLE 5(2)(C). IN THE FACTS OF THE CASE BEFORE US NO SUCH MATERIAL HAS BEEN BROUGHT ON RECORD NOR ANY SU CH PLEADING HAS BEEN RAISED BY THE AO OR LD. CIT(A) OR EVEN BY LD. DR BEFORE US. THE OFFICE FOUND TO BE EXISTED IN THE AID OF THE PROJECT(S) OF THE ASSESSEE. THUS, THE DETERMINA TION OF THE PROJECTS BEING PE OR OTHERWISE COULD BE EXAMINED ONLY ARTICLE 5(2)(I) AND NOWHERE ELSE. 4.19. WE FIND SUPPORT FROM ANOTHER JUDGMENT IN THE CASE OF NATIONAL PETROLEUM CONSTRUCTION CO. V. DIT (INTERNA TIONAL TAXATION) IN ITA NO.143/2013 AND OTHERS, ORDER DATE D 29.01.2016, WHEREIN HONBLE HIGH DELHI COURT GOT AN OCCASION TO ANALYSE LAW ON THIS ISSUE AT GREAT LENGTH WHILE DETERMINING THE PE OF THE SAID COMPANY IN TERMS OF DOUBLE TAXAT ION AVOIDANCE AGREEMENT BETWEEN INDIA AND UNITED ARAB E MIRATES (UAE). THE SAID COMPANY WAS ENGAGED IN EXECUTING CO NTRACT WITH THE ONGC LTD. ENTAILING DESIGNING, ENGINEERING , J. RAY MC DERMOTT 28 PROCUREMENT, FABRICATION, INSTALLATION AND COMMISSI ONING OF OFFSHORE PLATFORMS AT OFFSHORE FACILITY OF ONGC. TH E SAID COMPANY CLAIMED THAT IT DID NOT HAVE ITS PE IN IN DIA. THE CLAIM OF THE SAID COMPANY WAS REJECTED BY THE REVEN UE INTER- ALIA ON THE GROUND THAT THE SAID COMPANY HAD A PROJECT OFFICE IN INDIA WHICH WAS NOT ANY ANCILLARY OR AUXILIARY A CTIVITY. IT WAS INTER-ALIA CONTENDED BY THE REVENUE THAT PRE-BID SURVEY WAS CONDUCTED THROUGH THE PROJECT OFFICE WHICH WAS DIRECTLY CONNECTED WITH THE CONTRACT IN QUESTION AND THUS IT AMOUNTED TO DOING SUBSTANTIVE BUSINESS. THEREFORE, IN THE CO NTEXT OF THESE FACTS HONBLE HIGH COURT ANALYSED PROVISIONS OF ARTICLE 5 OF INDO-UAE TREATY TO FIND OUT WHETHER THE PE OF TH E SAID COMPANY WOULD BE DETERMINED AS PER ARTICLE 5(2)(H) OF INDO UAE DTAA TO DETERMINE AN INSTALLATION PE BASED UP ON THE WORK DURATION OF MAIN ACTIVITY OF THE ASSESSEE OR T HE PE SHALL BE DETERMINED ON THE BASIS OF PROJECT OFFICE OF THE SAID COMPANY IN TERMS OF ARTICLE 5(2)(C). HONBLE HIGH C OURT HELD THAT ITS PROJECT OFFICE SHALL NOT DETERMINE PE OF THE SAID COMPANY IN INDIA; RELEVANT OBSERVATIONS OF THE HIGH COURT ARE REPRODUCED BELOW: 24. IT IS THE ASSESSEE'S CASE THAT ITS OFFICE AT M UMBAI WAS OPENED ONLY TO COMPLY WITH CONTRACTUAL REQUIREMENTS AND THE EXCHANGE CONTROL REGULATIONS AND WAS USED ONLY AS A COMMUNICATION CHANNEL AND NOT FOR THE EXECUTION OF THE CONTRACTS. THE PROJECT OFFICE WAS ONLY USED FOR THE PURPOSES OF CORRESPONDENCE AND AS A COMMUNICATION CHANNEL; APART FROM THAT, THE PROJECT OFFICE HAD NO ROLE TO PLAY IN THE EXECUTION OF THE ACTIVITIES UNDER THE C ONTRACTS AND NO OTHER BUSINESS OF THE ASSESSEE WAS CARRIED O N THROUGH THE PROJECT OFFICE. THE PROJECT OFFICE WAS MANNED BY THREE EMPLOYEES; (I) RAVI K. PRABHAKAR; (II) PAV ITHRAN; J. RAY MC DERMOTT 29 (III) VIJAYAN. WHILE RAVI K. PRABHAKAR WAS DESIGNAT ED AS A LOGISTICS COORDINATOR, PAVITHRAN AND VIJAYAN WERE EMPLOYED AS OFFICE ASSISTANTS. THE SAID PERSONS WER E ONLY ENGAGED IN COLLECTING INFORMATION FROM ONGC OR ASL AND TRANSMITTING THE SAME TO THE ASSESSEE'S OFFICE IN A BU DHABI AND SIMILARLY TRANSMITTING COMMUNICATIONS FRO M ASSESSEE'S OFFICE IN ABU DHABI TO ONGC AND ASL. IT IS CLAIMED THAT THE ABOVENAMED THREE EMPLOYEES WERE SIMPLE GRADUATES AND WERE NOT CAPABLE FOR PARTICIPA TING IN THE EXECUTION OF THE WORK UNDERTAKEN. THE DRP HAD OBSERVED THAT SH. M.N. SHAH, SH. M. KARKERA, SH. C. G. PILLAI, SH. P.K.G. NAIR AND SH. R.L. KULKARNI, WHO WERE EMPLOYEES OF THE PROJECT OFFICE OF THE ASSESSEE, HA D ATTENDED THE KICK-OFF MEETING WITH ONGC ON 16TH DECEMBER, 2005 AND HAD ALSO SIGNED THE MINUTES OF T HAT MEETING. THE DRP HAD PROCEEDED ON THE BASIS THAT TH IS FACT WAS NOT DISPUTED. THE ITAT HAD ALSO CONCURRED WITH THE AFORESAID FINDING. HOWEVER, IT IS SEEN THAT THE ASSESSEE HAD REPEATEDLY POINTED OUT THAT PERSONS NA MED WERE NOT EMPLOYEES OF THE PROJECT OFFICE. FURTHER, THERE IS NO MATERIAL WHICH WOULD SUPPORT THE FINDINGS THAT S H. M.N. SHAH, SH. M. KARKERA, SH. C.G. PILLAI, SH. P.K .G. NAIR AND SH. R.L. KULKARNI WERE EMPLOYEES AT THE PROJECT OFFICE. 25. IN OUR VIEW, IN ABSENCE OF ANY MATERIAL, OBSERV ATIONS MADE WITH REGARD TO THE EMPLOYEES OF THE PROJECT OF FICE BEING PRESENT AT THE MEETING CANNOT BE SUSTAINED. SIMILARLY, THERE IS ALSO NO MATERIAL THAT THE EMPLO YEES OF THE PROJECT OFFICE HAD PARTICIPATED IN REVIEW OF TH E ENGINEERING DOCUMENTS DONE IN MUMBAI OR HAD PARTICIPATED IN THE DISCUSSIONS OR APPROVAL OF THE DESIGNS SUBMITTED TO ONGC. IN ABSENCE OF ANY MATERIAL EVIDE NCE TO CONTROVERT THE ASSESSEE'S CLAIM THAT ITS PROJECT OF FICE WAS ONLY USED AS A COMMUNICATION CHANNEL, THE SAME HAS TO BE ACCEPTED. THUS, THE NEXT ASPECT TO BE CONSIDERED IS WHETHER ACTING AS A COMMUNICATION CHANNEL WOULD FAL L WITHIN THE EXCEPTION OF CLAUSE (E) OF PARAGRAPH 3 O F ARTICLE 5 OF THE DTAA. 26. THE LANGUAGE OF SUB-PARA (E) OF PARAGRAPH 3 OF ARTICLE 5 OF THE DTAA IS SIMILAR TO THE LANGUAGE OF SUB-PAR A (E) OF PARAGRAPH 4 OF ARTICLE 5 OF THE MODEL CONVENTIONS F RAMED J. RAY MC DERMOTT 30 BY OECD, UNITED NATIONS AS WELL AS THE UNITED STATE S OF AMERICA. THE RATIONALE FOR EXCLUDING A FIXED PLACE OF BUSINESS MAINTAINED SOLELY FOR THE PURPOSES OF CARR YING ON ACTIVITY OF A PREPARATORY OR AUXILIARY CHARACTER HA S BEEN EXPLAINED BY PROFESSOR DR. KLAUS VOGEL. IN HIS COMM ENTARY ON 'DOUBLE TAXATION CONVENTIONS, THIRD EDITION', HE STATES THAT 'IT IS RECOGNISED THAT SUCH A PLACE OF BUSINES S MAY WELL CONTRIBUTE TO THE PRODUCTIVITY OF THE ENTERPRI SE, BUT THE SERVICES IT PERFORMS ARE SO REMOTE FROM THE ACTUAL REALISATION OF PROFITS THAT IT IS DIFFICULT TO ALLO CATE ANY PROFIT TO THE FIXED PLACE OF BUSINESS IN QUESTION. EXAMPLE S ARE FIXED PLACES OF BUSINESS SOLELY FOR THE PURPOSE OF ADVERTISING OR FOR THE SUPPLY OF INFORMATION OR FOR SCIENTIFIC RESEARCH OR FOR THE SERVICING OF A PATENT OR A KNOW -HOW CONTRACT, IF SUCH ACTIVITIES HAVE A PREPARATORY OR AUXILIARY CHARACTER'. 27. A DIVISION BENCH OF THIS COURT IN UAE EXCHANGE CENTRE LIMITED (SUPRA) CONSIDERED A CASE WHERE A UAE BASED ENTERPRISE MAINTAINED A LIAISON OFFICE IN INDIA AND THE ONLY ACTIVITY OF THAT OFFICE WAS TO DOWNLOAD INFORMATION CONTAINED IN THE MAIN SERVERS LOCATED IN UAE ON THE BASIS OF WHICH CHEQUES WERE DRAWN ON BANKS IN INDIA. THE SAID CHEQUES WERE COURIERED OR DISPATCHED TOTHE BENEFICI ARIES IN INDIA KEEPING IN MIND THE INSTRUCTIONS OF THE RE MITTERS. THIS COURT HELD THAT THE SAID ACTIVITY WAS ONLY IN AID AND SUPPORT OF THE MAIN ACTIVITY OF THE ASSESSEE IN THA T CASE AND, THUS, SUCH ACTIVITY WAS AUXILIARY IN CHARACTER . IN DIT (INTERNATIONAL TAXATION) V. MORGAN STANLEY & COMPAN Y INC.: (2007) 292 ITR 416 (SC), THE SUPREME COURT HE LD THAT THE BACK OFFICE OPERATIONS CARRIED ON AT AN OFFICE WOULD FALL WITHIN THE EXCLUSIONARY CLAUSE OF ARTICLE 5(3)(E) O F THE TREATY BETWEEN INDIA AND UNITED STATES WHICH IS ALS O IDENTICALLY WORDED AS ARTICLE 5(3)(E) OF THE DTAA. 28. THE BLACK'S LAW DICTIONARY DEFINES THE WORD 'AU XILIARY' TO MEAN AS 'AIDING OR SUPPORTING, SUBSIDIARY'. THE WORD 'AUXILIARY' OWES ITS ORIGIN TO THE LATIN WORD 'AUXI LIARIUS' (FROM AUXILIUM MEANING 'HELP'). THE OXFORD DICTIONA RY DEFINES THE WORD 'AUXILIARY' TO MEAN 'PROVIDING SUPPLEMENTARY OR ADDITIONAL HELP AND SUPPORT'. IN T HE CONTEXT OF ARTICLE 5(3)(E) OF THE DTAA, THE EXPRESS ION WOULD J. RAY MC DERMOTT 31 NECESSARILY MEAN CARRYING ON ACTIVITIES, OTHER THAN THE MAIN BUSINESS FUNCTIONS, THAT AID AND SUPPORT THE ASSESSEE. IN THE CONTEXT OF THE CONTRACTS IN QUESTI ON, WHERE THE MAIN BUSINESS IS FABRICATION AND INSTALLATION O F PLATFORMS, ACTING AS A COMMUNICATION CHANNEL WOULD CLEARLY QUALIFY AS AN ACTIVITY OF AUXILIARY CHARACT ER - AN ACTIVITY WHICH AIDS AND SUPPORTS THE ASSESSEE IN CA RRYING ON ITS MAIN BUSINESS. 29. IN VIEW OF THE ABOVE, THE ACTIVITY OF THE ASSES SEE'S PROJECT OFFICE IN MUMBAI WOULD CLEARLY FALL WITHIN THE EXCLUSIONARY CLAUSE OF ARTICLE 5(3)(E) OF THE DTAA AND, THEREFORE, CANNOT BE CONSTRUED AS THE ASSESSEE'S PE IN INDIA. 4.20. SIMILARLY IN THE CASE OF ACIT V. RADWARE LTD. ( IT AT DELHI IN ITA NO.3099/DEL/2009 ORDER DATED 21.01.201 6), SIMILAR VIEW HAS BEEN TAKEN WITH THE FOLLOWING OBSE RVATIONS: 8.1. WE OBSERVE THAT THE DECISION OF THE JURISDICT IONAL HIGH COURT IN THE CASE OF UAE EXCHANGE CENTRE LIMIT ED (SUPRA) COVERS THE ISSUE WHICH NEEDS TO BE CONSIDER ED IN THE PRESENT APPEAL. WE HAVE OBSERVED FROM THE FINDI NGS OF THE LD. CIT(A) THAT THE ASSESSEE HAS BEEN INVOLVED IN SUPPLYING THE LITERATURE RELATING TO MARKETING AND SALES WITHOUT ANY PARTICIPATION IN ACTUAL SALES ACTIVITY. THE ISRAELI COMPANY IS SELLING THE PRODUCTS TO THE DIST RIBUTORS AS PER THE REQUIREMENTS DIRECTLY FROM ISRAEL, AND A LSO MAKES EFFORTS TO SERVICES AND MAINTAIN PRODUCTS USE D WITHIN THE TERRITORY, WHICH ARE SOLD DIRECTLY BY TH E ISRAELI COMPANY. THE ISRAELI COMPANY FURTHER SELLS TO THE DISTRIBUTORS WITHIN THE TERRITORY NOT BEING THE ASS ESSEE AND THAT THESE DISTRIBUTORS FURTHER RESALE THE PRODUCTS TO ULTIMATE CUSTOMERS INDEPENDENTLY. 8.2. THE LIAISON OFFICE ONLY PROVIDES CERTAIN SERVICING OF THE EQUIPMENTS T O THE DISTRIBUTORS FOR WHICH THE EXPENSES ARE REIMBURSED BY THE ISRAELI COMPANY. THE LIAISON OFFICE IN INDIA IS MER ELY IN THE NATURE TO FACILITATE THE CONTRACT BETWEEN THE DISTR IBUTORS AND THE ISRAELI COMPANY. THE DISTRIBUTION CONTRACT, PER SE AT PAGE _____ OF THE PAPER BOOK, DO NOT RESULT INTO ANY J. RAY MC DERMOTT 32 GENERATION OF INCOME AND, THEREFORE, THE ACTIVITIES OF THE ASSESSEE HAVE TO BE DEFINITELY CONSIDERED TO BE PRO PRIETARY AND AUXILIARY IN NATURE. THE LD. AR HAS BROUGHT TO OUR NOTICE RBI APPROVAL, AT PAGE 10 OF THE PAPER BOOK, WHICH HAS BEEN RECEIVED BY THE ASSESSEE, FOR THE PURPOSES OF UNDERTAKING LIAISON ACTIVITIES AND TO ACT AS A COMMUNICATION CHANNEL BETWEEN THE PARTIES IN INDIA AND THE ISRAELI COMPANY. 8.3. MOREOVER, THE AO HAS RELIED UPON THE JUDGMENT OF THE AUTHORITIES OF ADVANCE RULING IN THE CASE OF UAE EX CHANGE CENTRE LIMITED REPORTED IN (2004) 268 ITR 9 AAR WHI CH HAS BEEN REVERSED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF UAE EXCHANGE CENTRE LIMITED (SUPRA). 8.4. IN VIEW OF THE FOREGOING DISCUSSION, WE CONCLU DE THAT THE ASSESSEE DOES AMOUNT TO A PE IN INDIA, AND ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE IS A LIAISON O FFICE AND ARE PROVIDING SERVICES WHICH ARE PROPRIETARY OR AUX ILIARY IN NATURE. WE, THEREFORE, DO NOT FIND ANY INFIRMITY WI TH THE FINDINGS OF THE LD. CIT(A). 4.21. IN THE CASE CAL DIVE MARINE CONSTRUCTION (MAURITIU S) LTD. V. DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION), CHENNAI 182 TAXMANN.COM 124 IT WAS OBSERVED BY THE AUTHORITY FOR ADVANCE RULING, NEW DELHI WHILE ADDRE SSING AN IDENTICAL ISSUE IN THE CONTEXT OF INDO-MAURITIUS TA X TREATY THAT: ONCE CLAUSE (I) IS ATTRACTED, THE MINIMUM PERIOD TE ST WILL HAVE TO BE NECESSARILY APPLIED. THE FACT THAT THE A PPLICANT MAY HAVE A PROJECT OFFICE OR A WORKSHOP FOR THE PUR POSE OF CARRYING OUT THE CONTRACTUAL WORK DOES NOT BRING TH E ESTABLISHMENT OF THE APPLICANT WITHIN THE OTHER CLA USES OF PARA 2 TO THE EXCLUSION OF CLAUSE (I). ON THE OTHER HAND, CLAUSE (I) BEING A SPECIFIC PROVISION DEALING WITH CONSTRUCTION OR ASSEMBLY PROJECT, THAT PROVISION PR EVAILS OVER THE OTHER CLAUSES OF PARA 2 OF ARTICLE 5 WHICH ARE GENERAL IN NATURE. IN OTHER WORDS, AN OFFICE OR WOR KSHOP, IF IT IS ESTABLISHED AS A PART OF OR INCIDENTAL TO THE EXECUTION OF A CONSTRUCTION OR ASSEMBLY PROJECT, IT IS CLAUSE (I) ALONE THAT COMES INTO PLAY. THAT IS THE ONLY WAY TO RECON CILE AND J. RAY MC DERMOTT 33 AVOID CONFLICT BETWEEN OVERLAPPING ITEMS/EXPRESSION S CONTAINED IN PARA 2 OF ARTICLE 5. 4.22 . IN THE CASE OF KREUZ SUBSEA PTE. LTD. VS DEPUTY DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) 58 TAXMANN.C OM 371, MUMBAI BENCH OF THE ITAT DECIDED THE IDENTICAL ISSU E ON SIMILAR LINES WHEREIN THE ISSUE BEFORE THE BENCH WA S THAT IF TWO PROVISIONS OF AN ARTICLE MAY BE APPLICABLE FOR DETERMINATION OF PE OF AN ASSESSEE THEN IN WHAT MAN NER THE PROVISIONS SHOULD BE APPLIED. FOLLOWING OBSERVATION S OF THE HONBLE BENCH ARE USEFULLY ON THE ISSUE. ARTICLE 5(3) IS A SPECIFIC PROVISION DEALING WITH ' SERVICE PE', ON ACCOUNT OF CONSTRUCTION, INSTALLATION OR ASSEMBL Y PROJECT. IF IT CONTINUES FOR A PERIOD OF MORE THAN 183 DAYS IN ANY FISCAL YEAR. THE INSTALLATION ACTIVITY INCLU DES ERECTION/SETTING UP MACHINE, EQUIPMENTS AND TESTING AND COMMISSIONING OF SUCH MACHINES AND EQUIPMENTS. INSTALLATION ALSO RELATES TO A CONSTRUCTION OF A PR OJECT. ARTICLE 5(6) WHEREAS ENVISAGES THAT, IF AN ENTERPRI SE IS 'FURNISHING SERVICES' IN THE CONTRACTING STATE THRO UGH ITS EMPLOYEES FOR A PERIOD OF 90 DAYS OR MORE, THEN IT IS DEEMED TO HAVE SERVICE PE, EXCEPT FOR THE SERVICES REFERRED TO IN PARA 4 AND 5. THE THRESHOLD PERIOD UNDER THIS PARA IS 90 DAYS AND MORE; OR IF SUCH ACTIVITIES ARE PERFORM ED FOR A RELATED ENTERPRISE, THEN PERIOD OF MORE THAN 30 DAY S. THE ARTICLE 5(6) EXPLICITLY PROVIDES THAT IT APPLIES TO 'SERVICES' OTHER THAN THOSE COVERED BY ARTICLE 5(4) AND 5(5), HOWEVER, THE SAID ARTICLE IS SILENT AS REGARDS ITS RELATIONS HIP WITH ARTICLE 5(3). THUS, ARTICLE 5(6) COVER VARIOUS SERV ICES WHICH ARE NOT COVERED BY PARA 4 AND 5 OF ARTICLE 5 AND TE CHNICAL SERVICES AS DEFINED IN ARTICLE 12. WHAT KIND OF SER VICES HAVE BEEN CONTEMPLATED IN PARA 6 OF ARTICLE 5 HAVE NOT BEEN ELABORATED IN THE TREATY OR ELSEWHERE. IN CONTRADISTINCTION, PARA 3 OF ARTICLE 5 IS VERY SPEC IFIC AND THEREFORE, SUCH SPECIFIC ACTIVITIES CANNOT BE READ INTO PARA 6 OF ARTICLE 5. THERE CANNOT BE A OVERLAPPING OF AC TIVITIES CARRIED OUT WITHIN THE AMBIT OF ARTICLE 5(3) AND FU RNISHING J. RAY MC DERMOTT 34 OF SERVICES AS STATED IN ARTICLE 5(6). BOTH SHOULD BE READ INDEPENDENT OF EACH OTHER, OR ELSE THERE WAS NO REQUIREMENT OF ENSHRINING SEPARATE PROVISIONS. IF T HE ACTIVITIES RELATING TO CONSTRUCTION OR INSTALLATION ARE SPECIFICALLY COVERED UNDER ARTICLE 5(3), THEN ONE N EED NOT TO GO IN ARTICLE 5(6). THUS, THE ACTIVITY OF THE ASSES SEE WHICH IS PURELY INSTALLATION SERVICES HAS TO BE SCRUTINIZ ED UNDER ARTICLE 5(3) ONLY AND NOT WITHIN ARTICLE 5(6). 4.23 . IN THE CASE OF CIT VS. M/S. BKI/HAM (IN ITA NO.34 O F 2007 ORDER DATED 14.10.2011), A SIMILAR ISSUE AROSE BEFORE HONBLE HIGH COURT OF UTTARAKHAND WHEREIN HONBLE H IGH COURT WAS CALLED UPON TO DETERMINE THE EFFECT AND I NTERPLAY OF VARIOUS PARAS OF ARTICLE 5 OF DTAA BETWEEN INDIA A ND NETHERLANDS FOR DETERMINING THE PE OF THE SAID ASSE SSEE IN INDIA, KEEPING IN VIEW THE PRECEDENCE OF SPECIFIC P ROVISION VIZ- A-VIZ GENERAL PROVISION OF ARTICLE 5. AFTER ANALYZI NG THE PROVISIONS OF THE TREATY, HONBLE HIGH COURT HELD A S UNDER: A PERUSAL OF ARTICLE 5(1) OF THE TREATY INDICATES THAT A 'PE' MEANS A FIXED PLACE OF BUSINESS THROUGH WHICH THE BUSINESS OF THE ENTERPRISE IS WHOLLY OR PARTLY CARR IED ON. ARTICLE 5(2) OF THE TREATY INCLUDES A PLACE OF MANA GEMENT, A BRANCH, AN OFFICE, A FACTORY, A WORKSHOP, A MINE, A N OIL OR GAS WELL, A QUARRY OR ANY OTHER PLACE OF EXTRACTION OF NATURAL RESOURCES, A WAREHOUSE IN RELATION TO A PER SON PROVIDING STORAGE FACILITIES FOR OTHERS, A PREMISES USED AS A SALES OUTLET, AN INSTALLATION OR STRUCTURE USED FOR EXPLORATION OF NATURAL RESOURCES PROVIDED THAT THE ACTIVITIES CONTINUE FOR MORE THAN 183 DAYS. ARTICLE 5(3) PROVI DES THAT A BUILDING SITE OR CONSTRUCTION, INSTALLATION OR AS SEMBLY PROJECT CONSTITUTES A PE ONLY WHERE SUCH SITE OR PR OJECT CONTINUES FOR A PERIOD OF MORE THAN SIX MONTHS. IN THE LIGHT OF THE AFORESAID PROVISIONS, THE LEARN ED COUNSEL FOR THE ASSESSEE (SIC APPELLANTREVENUE) SUBMITTED THAT THE ASSESSEE HAD A PE UNDER THE PROVISION OF ART. 5 (2) AND HAD AN OFFICE AT BOMBAY AND, CONSEQUENTLY, HAD A PE WHICH HAS NOT BEEN CONSIDERED BY THE APPELLATE AUTH ORITY J. RAY MC DERMOTT 35 AS WELL AS BY THE TRIBUNAL. THE LEARNED COUNSEL FOR THE APPELLANT(REVENUE) SUBMITTED THAT IN VIEW OF THE FA CT THAT THE ASSESSEE HAD AN OFFICE AT BOMBAY, THE PROVISION OF ART. 5(3) WAS IMMATERIAL. THE SUBMISSION OF THE LEARNED COUNSEL FOR THE APPEL LANT IS PATENTLY ERRONEOUS AND MISCONCEIVED. THE TRIBUNAL I N THE ASST. YR. 1995-96 AS WELL AS THE APPELLATE AUTHORIT Y IN THE ASST. YR. 1994-95 HAVE CATEGORICALLY GIVEN A FINDIN G OF FACT THAT THE ENTIRE DURATION OF THE CONTRACT WAS FROM 2 7TH DEC., 1993 TILL 26TH JUNE, 1994, I.E., LESS THAN SIX MONT HS. ARTICLE 5(3) OF THE TREATY PROVIDED THAT IN ORDER T O CONSTITUTE A PE SUCH SITE OR PROJECT SHOULD CONTINUE FOR A PER IOD OF MORE THAN SIX MONTHS. SUCH SITE OR PROJECT, IN OUR OPINION, IS PROVIDED UNDER ART. 5(2) OF THE TREATY AND, THER EFORE, THE SITE OR PROJECT PROVIDED UNDER ART. 5(2) SHOULD CON TINUE FOR A PERIOD OF MORE THAN SIX MONTHS IN ORDER TO CONSTI TUTE A PE. SINCE A CATEGORICAL FINDING OF FACT HAS BEEN GI VEN BY THE APPELLATE AUTHORITY THAT THE CONTRACT WAS FOR L ESS THAN SIX MONTHS, IT BECOMES ABSOLUTELY CLEAR THAT THE AS SESSEE DID NOT HAVE A PE IN INDIA AS PER ART. 5(3) OF THE TREATY. THE COURT IS OF THE OPINION THAT ART. 5(3) PROVIDES A S PECIFIC PROVISION WHICH COVERS THE PROVISION OF ART. 5(2) O F THE TREATY. THE COURT IS OF THE OPINION THAT THE SPECIF IC PROVISION WOULD PREVAIL OVER THE GENERAL PROVISION. CONSEQUENTLY, THE COURT IS OF THE OPINION THAT NO P E WAS CONSTITUTED BY THE ASSESSEE IN INDIA DURING THE ASSESSMENT YEAR IN QUESTION. 4.24. IN VIEW OF THE FACTS OF THIS CASE AND JUDGMENTS DI SCUSSED BY US ABOVE IT CAN BE HELD THAT PE OF THE ASSESSEE SHOULD BE DETERMINED, KEEPING IN VIEW WORK CARRIED OUT AT ITS PROJECT SITES. WE HAVE ALREADY HELD THAT ON THE BASIS OF FA CTS BEFORE US THE WORK DURATION WAS LESS THAN 9 MONTHS. THUS, IN OUR VIEW, SINCE THE PROJECT OF THE ASSESSEE DID NOT HAVE WORK DURATION OF MORE THAN 9 MONTHS DURING THE YEAR AS PER THE FACTS BROUGHT BEFORE US AS DISCUSSED IN DETAIL IN EARLIER PART OF THE ORDER, AN ACTIVITY OF THE MAINTENANCE OF BACK-UP CUM SUPPORT OFFICE J. RAY MC DERMOTT 36 SIMPLICITER SHALL NOT CONSTITUTE PE OF THE ASSE SSEE. GROUND NO.1.1. IS ALLOWED. 5. GROUND NO.1.2: IN THIS GROUND, THE ASSESSEE HAS CONTENDED THAT LD CIT(A) OUGHT TO HAVE HELD THAT NO INCOME CA N BE ATTRIBUTED TO THAT PERMANENT ESTABLISHMENT, I.E. TH E INDIAN LIAISON OFFICE. SINCE GROUND NO.1.1 HAS BEEN DECIDE D IN FAVOUR OF THE ASSESSEE HOLDING THAT THE ASSESSEE DID NOT H AVE A PE IN INDIA, THIS GROUND BECOMES INFRUCTUOUS AND THEREFOR E DISMISSED. 6. GROUND NO.2: IN THIS GROUND, THE ASSESSEE HAS RAISED THE GRIEVANCE WITH REGARD TO ACTION OF LD. CIT(A) IN HO LDING THAT INSURANCE RECEIPTS WERE TAXABLE U/S 44BB OF THE INC OME TAX ACT 1961. 6.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WA S NOTED BY THE AO THAT ASSESSEE HAD SHOWN INCOME UNDE R THE HEAD OTHER INCOME AT US$ 2,793,063/- EQUIVALENT TO RS.10,98,79,098/- BEING THE AMOUNT OF INSURANCE CLA IM RECEIVED. THE DETAILS OF THE SAID RECEIPTS AS MENTI ONED IN THE ASSESSMENT ORDER BY THE AO ARE THAT THE INSURANCE C LAIM WAS RECEIVED OUTSIDE INDIA IN RESPECT OF LOSS SUFFERED BY ASSESSEE WHEN THE LEG PILE OF TPP JACKET LOCATED IN TAPTI FI ELD OFFSHORE INDIA MET REFUSAL DURING THE INSTALLATION WORKS. IT WAS SUBMITTED BY THE ASSESSEE THAT AS THE CLAIM WAS REC EIVED OUTSIDE INDIA AND WAS TOWARDS THE REIMBURSEMENT OF COST INCURRED BY THE ASSESSEE, THEREFORE, IT WAS NOT OFF ERED TO TAX IN J. RAY MC DERMOTT 37 INDIA. BUT AO WAS NOT SATISFIED WITH THE CLAIM OF T HE ASSESSEE. IT WAS NOTED BY HIM THAT SINCE ASSESSEE COMPANY HAD EXECUTED CONTRACTS ONLY IN INDIA SINCE ITS INCEPTIO N AND AT NO FURTHER PLACE, AND THEREFORE, THE IMPUGNED AMOUNT R ELATES TO AND HAS NEXUS WITH THE INDIAN OPERATIONS. IT WAS FU RTHER HELD BY HIM THAT SINCE THE ASSESSEE COMPANY HAD A PE IN INDIA, THUS, AMOUNT WAS TAXABLE IN INDIA. IT WAS ALSO HELD BY AO THAT AS PER ARTICLE 21(2) OF INDO-MAURITIUS TREATY, ITEM S OF INCOME WHICH ARE NOT EXPRESSLY DEALT WITH IN ANY OF THE AR TICLES OF THE TREATY, THEN THE PROVISIONS OF ARTICLE 7 WOULD APPL Y FOR SUCH A CASE. IT WAS FURTHER NOTED BY AO THAT SINCE INSURAN CE CLAIM RECEIPTS HAVE NOT BEEN DEALT WITH IN ANY OF THE ART ICLES OF THE TREATY, THEREFORE, ARTICLE 7 WILL APPLY ON SUCH ITE MS OF INCOME. THE AO ALSO REFUSED TO GRANT BENEFIT OF ANY EXPENSE S ON THE GROUND THAT ALL THE ALLOWABLE EXPENSES HAVE BEEN CO NSIDERED WHILE DETERMINING THE PROFITS U/S 44BB OF THE ACT. 6.2. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A), ASSESSEE MADE DETAILED SUBM ISSIONS REITERATING ITS STAND AS WAS TAKEN BEFORE AO. IT WA S SUBMITTED THAT COMPLETE DETAILS WERE GIVEN TO THE AO. THE SAI D AMOUNT WAS RECEIVED OUTSIDE INDIA AND IT WAS RECEIVED ON A CCOUNT OF LOSS SUFFERED BY THE ASSESSEE PERTAINING TO TAPTI F IELD LOCATED BEYOND 12 NAUTICAL MILES FROM THE COASTAL LINE. THE AMOUNT WAS RECEIVED UNDER THE INSURANCE POLICY BY WAY OF REIMBURSEMENT OF COST INCURRED IN THE SAID PROJECT. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE LD. CIT (A) HELD THAT THE SAID AMOUNT WAS BUSINESS INCOME AS PER AR TICLE 7 OF J. RAY MC DERMOTT 38 THE TREATY, AND COULD BE TAXED ONLY U/S 44BB. THE I NSURANCE CLAIM RECEIPT WAS CONNECTED WITH THE BUSINESS OF TH E ASSESSEE COMPANY IN INDIA AND WAS REIMBURSEMENT OF THE DAMAGE/LOSS/COST INCURRED BY THE ASSESSEE COMPANY, AND THEREFORE, IT SHOULD BE TAXED U/S 44BB. 6.3. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE TRIBUNAL CONTENDING THAT LD. CIT(A) OUGHT TO HAVE H ELD IMPUGNED RECEIPTS AS NOT TAXABLE IN INDIA. IT IS NO TED BY US THAT THE REVENUE IS NOT AGGRIEVED WITH THE ACTION O F LD. CIT(A). DURING THE COURSE OF HEARING BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE IMPUGNED RECEIPTS ARE P ART OF BUSINESS RECEIPTS AND ITS TAXABILITY CAN BE EXAMINE D U/S 44BB READ WITH ARTICLE 7 OF INDO-MAURITIUS TREATY, IT IS FURTHER SUBMITTED THAT SINCE IT IS PART OF BUSINESS RECEIPT S IT CAN BE BROUGHT TO TAX ONLY SUBJECT TO THE PROVISIONS OF AR TICLE 7, WHICH ARE IN TURN SUBJECT TO ARTICLE 5 OF THE TREATY AND PROVIDE FOR EXISTENCE OF PE AS A MANDATORY CONDITION FOR TAXING ANY AMOUNT IN INDIA UNDER ARTICLE 7. IN OTHER WORDS, IT WAS SUBMITTED BY THE LD. COUNSEL THAT SINCE ASSESSEE HA D NO PE IN INDIA DURING THE YEAR UNDER CONSIDERATION THEREFORE , THIS AMOUNT COULD NOT HAVE BEEN BROUGHT TO TAX IN INDIA. LASTLY, IT WAS SUBMITTED BY HIM THAT THE IMPUGNED RECEIPTS WER E RECEIVED ON ACCOUNT OF REIMBURSEMENT OF COSTS INCUR RED BY THE ASSESSEE IN EARLIER YEARS, AND THUS, IT IS RECOVERY OF THOSE EXPENSES WHICH WERE NEVER CLAIMED BY THE ASSESSEE I N THE RETURN OF INCOME, AND THEREFORE, AMOUNT RECOVERED N OW CANNOT BE BROUGHT TO TAX. J. RAY MC DERMOTT 39 6.4. IN THIS REGARD, THE LD. DR HAS CONTENDED THAT EVEN IF IT IS HELD THAT ASSESSEE HAS NO PE IN INDIA, THE IMPUGNED AMOUNT SHALL BE TAXABLE U/S 44BB IN VIEW OF THE JUDGMENT O F HONBLE UTTRAKHAND HIGH COURT IN THE CASE OF CIT VS. M/S HA LLIBURTON OFFSHORE SERVICE INC. 6.5. WE HAVE GONE THROUGH THE JUDGMENT RELIED UPON BY T HE LD. DR, ARGUMENTS MADE BY THE LD. COUNSEL, FACTS OF THE CASE AS WELL AS ORDERS PASSED BY THE LOWER AUTHORITIES. THE FACTS BROUGHT BEFORE US CLEARLY SUGGEST THAT IMPUGNED AMO UNT IS RECOVERY OF THE EXPENSES/COST INCURRED BY THE ASSES SEE WITH RESPECT TO THE OPERATIONS CARRIED OUT IN THE IMPUGN ED PROJECTS IN THE TERRITORIAL JURISDICTION OF INDIA. THUS, CLE ARLY SPEAKING THESE RECEIPTS ARE PART AND PARCEL OF THE BUSINESS OPERATIONS OF THE ASSESSEE CARRIED OUT IN INDIA. THUS, TAXABILITY OF THE IMPUGNED RECEIPTS HAS TO BE EXAMINED AS PER SECTION 44BB AS WELL AS ARTICLE 7 OF THE INDO-MAURITIUS TREATY WHIC H DEALS WITH TAXABILITY OF BUSINESS PROFITS. ARTICLE 7 CLEARLY L AYS DOWN THAT EXISTENCE OF PE IN INDIA IS A MANDATORY CONDITION F OR TAXING BUSINESS PROFITS OF RESIDENTS OF MAURITIUS IN INDIA . 6.6. WE HAVE ALSO GONE THROUGH THE JUDGMENT OF HONBLE UTTARKHAND HIGH COURT RELIED UPON BY THE LD. DR IN THE CASE OF CIT VS. M/S HALLIBURTON OFFSHORE SERVICE INC.(SU PRA). IN THE SAID JUDGMENT, IT HAS BEEN HELD BY THE HONBLE HIGH COURT THAT AGGREGATE AMOUNT RECEIVED BY A NON-RESIDENT ASSESSE E IS CHARGEABLE TO TAX U/S 44BB @ OF 10% WITHOUT ANY DED UCTIONS, J. RAY MC DERMOTT 40 LIKE FREIGHT AND TRANSPORTATION CHARGES. SECTION 44 BB TAXES THE INCOME ON DEEMED BASIS. IT HAS NOWHERE BEEN HEL D IN THE SAID JUDGMENT THAT MISCELLANEOUS RECEIPTS SHALL BE TAXABLE U/S 44BB WHETHER THE ASSESSEE HAS PE OR NO PE IN INDIA. THUS, THE SAID JUDGMENT IS HAVING ALTOGETHER DIFFERENT FA CTS AND APPEARS TO HAVE BEEN MISREAD BY THE LD. DR AND DOES NOT LAY DOWN ANY SUCH ISSUE AS WAS CANVASSED BY THE LD. DR BEFORE US. 6.7. THUS, IN VIEW OF THE AFORESAID LEGAL POSITION, WE HOLD THAT THE SAID AMOUNT CAN BE BROUGHT TO TAX ONLY IF THE A SSESSEE HAS A PE IN INDIA FOR THE CONCERNED PROJECT. BUT THE FA CTS BROUGHT BEFORE US WERE NOT COMPLETE AND CLEAR. FURTHER, THE RE IS NO CLARITY AS TO THE FACT WHETHER IMPUGNED RECEIPTS WE RE WITH REGARD TO WHICH PROJECT AND PERTAIN TO WHICH PERIOD AND WHETHER THE SAID PROJECT CONSTITUTED A PE IN THE IM PUGNED PERIOD OR NOT. THE ASSESSEE HAS ADMITTED THE LEGAL POSITION THAT IN CASE WORK DURATION OF A PROJECT EXCEEDS 9 M ONTHS, THEN INCOME FROM THE SAID PROJECT WOULD BE LIABLE TO BE TAXED U/S 44BB. THEREFORE, WE REMIT THIS ISSUE BACK TO THE FI LE OF THE AO TO EXAMINE COMPLETE AND CORRECT FACTS. IF THESE REC EIPTS PERTAIN TO PROJECT WHICH DID NOT CONSTITUTE ANY PE IN INDIA THEN THESE RECEIPTS WOULD NOT BE TAXABLE. IN THE CASE SAID PRO JECT CONSTITUTED A PE IN INDIA AT THE RELEVANT POINT OF TIME THEN AO IS REQUIRED TO FIND OUT FURTHER WHETHER THE EXPENSE S/COST (FOR WHICH RECOVERY HAS BEEN MADE BY WAY OF IMPUGNED INS URANCE CLAIM) WERE CLAIMED AS EXPENSES OR NOT. IN CASE NO CLAIM WAS MADE OF THE EXPENSES, THEN RECOVERY THEREOF CANNOT BE BROUGHT J. RAY MC DERMOTT 41 TO TAX AT THIS STAGE. IN OTHER WORDS, IF THE IMPUGN ED EXPENSES WERE ORIGINALLY AN ITEM OF BALANCE AND WERE NOT DEB ITED IN THE PROFIT AND LOSS ACCOUNT, THEN THEIR RECOVERY SHALL NOT GIVE RISE TO ANY INCOME MUCH LESS A TAXABLE INCOME. THUS, WIT H THESE DIRECTIONS AND OBSERVATIONS, WE SEND THIS ISSUE BAC K TO THE FILE OF THE AO WHO SHALL GIVE ADEQUATE OPPORTUNITY OF HE ARING TO THE ASSESSEE AND SHALL DECIDE THIS ISSUE AFRESH AFT ER CONSIDERING ALL THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSEE IS FREE TO RAISE ALL THE LEGAL AND FACTUAL ISSUES BEFORE THE AO. THIS GROUND MAY BE TREATED AS PARTLY ALLOWE D FOR STATISTICAL PURPOSES. 7. GROUND NO.3: THIS GROUND IS GENERAL AND NO ARGUMENTS WERE MADE AND THEREFORE, IT IS DISMISSED. WE SHALL TAKE UP NOW THE ASSESSEES APPEAL IN ITA NO.5302/MUM/2004 FOR A.Y. 2000-01: THE ASSESSEE HAS RAISED FOLLOWING GROUNDS: 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ['CIT(A)'] ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER ('AO') IN CHARGING TO TAX U/S 44B B THE RECEIPTS FROM ALL THE CONTRACTS ON THE GROUND THAT THE APPELLANT HAD A PERMANENT ESTABLISHMENT IN INDIA IGNORING THE FACT THAT THE DURATION OF WORK PERFORM ED IN INDIA UNDER EACH OF THE CONTRACT DID NOT EXCEED 9 M ONTHS. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE APPELLANT HAD A PERMANENT ESTABLISHMENT IN INDIA FOLLOWING THE CIT(A)'S ORDER FOR ASSESSMENT YEAR 19 97- 1998 IGNORING THE FACT THAT THE ORDER WAS PENDING F OR DISPOSAL ON THE DATE OF PASSING THE ORDER FOR THE S UBJECT YEAR. 2. THE CIT(A) ERRED IN UPHOLDING THE CONTENTION OF THE AO THAT THE LIAISON OFFICE OF J. RAY MCDERMOTT MIDDLE EAST J. RAY MC DERMOTT 42 INC., A SEPARATE LEGAL ENTITY, CONSTITUTED PERMANEN T ESTABLISHMENT OF THE APPELLANT AND THAT ANY PROFIT COULD HAVE BEEN ATTRIBUTED TO THE PE. 3. WITHOUT PREJUDICE TO THE GROUNDS 1 & 2, THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT NO INCOME COULD BE ATTRIBUTED TO THAT PERMANENT ESTABLISHMENT. WITHOUT PREJUDICE TO THE ABOVE, THE CIT(A) OUGHT TO HAVE HELD THAT ONLY THE PROPORTION OF INCOME ATTRIB UTABLE TO THAT PERMANENT ESTABLISHMENT MAY BE TAXED IN IND IA. 4. THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO IN TAXING THE MISCELLANEOUS AND OTHER INCOME AMOUNTING TO US$ 15,915. 8. GROUND NOS. 1, 2 AND 3: IT IS NOTED THAT LD. CIT(A) HAS FOLLOWED HIS OWN ORDER FOR A.Y. 1998-99 WHILE DISPO SING THESE GROUNDS, THEREFORE, WE DIRECT THE AO TO FOLLOW OUR ORDER FOR A.Y. 1998-99 AND VERIFY NUMBER OF DAYS OF WORK DURA TION AND OTHER REQUISITE FACTS WITH REGARD TO THE PROJECT CA RRIED OUT BY THE ASSESSEE DURING THE IMPUGNED FINANCIAL YEAR FOR DETERMINATION OF ITS PE IN INDIA. ACCORDINGLY, THES E GROUNDS MAY BE TREATED AS ALLOWED IN TERMS OF OUR DIRECTION S AND DECISIONS GIVEN IN A.Y. 1998-99. 9. GROUND NO.4: IN THIS GROUND THE ASSESSEE HAS CHALLENGED THE ACTION OF LOWER AUTHORITIES IN BRINGING TO TAX AMOUNT RECEIVED BY THE ASSESSEE PRIMARILY ON ACCOUNT OF DI SCOUNT EARNED, EXCHANGE GAIN AND MISCELLANEOUS INCOME 9.1. IN OUR CONSIDERED VIEW, THESE RECEIPTS ARE PART AN D PARCEL OF THE OPERATIONS CARRIED OUT BY THE ASSESSEE ON IT S PROJECTD AND THEREFORE, THESE SHOULD BE TREATED AS PART OF B USINESS J. RAY MC DERMOTT 43 PROFITS LIABLE TO BE TAXED U/S 44BB SUBJECT TO PROV ISIONS OF ARTICLE 7 AND ARTICLE 5 OF INDO-MAURITIUS TREATY. 9.2. WE HAVE DECIDED AN IDENTICAL ISSUE IN GROUND NO 2 OF A.Y. 1998-99 ( IN THE ASSESSEES APPEAL) WHEREIN THE ISS UE WAS SENT BACK TO THE FILE OF THE AO FOR VERIFICATION OF FACT S FOR DETERMINATION OF PE OF THE RELATED PROJECTS. WE FIN D IT APPROPRIATE TO SEND THIS ISSUE ALSO BACK TO THE FIL E OF THE AO. THE AO SHALL VERIFY THE REQUISITE FACTS TAKING GUID ANCE FROM OUR ORDER OF A.Y. 1998-99 AND THE DIRECTIONS CONTAI NED THEREIN SHALL APPLY MUTATIS MUTANDIS. WITH THESE DIRECTIONS, THE ISSUE IS RESTORED BACK TO THE FILE OF THE AO. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. NOW WE SHALL TAKE UP ASSESSEES APPEAL IN ITA NO.2226/MUM/2009 FOR A.Y. 2000-01 (PENALTY APPEAL): 10. THIS APPEAL PERTAINS TO LEVY OF PENALTY U/S 271(1) (C). 10.1. IT IS NOTED THAT THE ISSUES INVOLVED IN THE QUANTU M APPEAL HAVE EITHER BEEN ALLOWED IN THE QUANTUM APPE AL OR THESE HAVE BEEN SENT BACK TO THE FILE OF THE AO FOR VERIFICATION OF REQUISITE FACTS. THUS, PENALTY IS DELETED ON THO SE ADDITIONS WHICH HAVE BEEN DELETED IN THE QUANTUM APPEAL. FOR THE REMAINING ISSUES WHICH HAVE BEEN SENT BACK TO THE F ILE OF AO, THE PENALTY ORDER DOES NOT SURVIVE AS ON DATE, AND THEREFORE, THE SAME IS SET ASIDE. THE AO IS FREE TO INITIATE A ND LEVY THE PENALTY AS PER LAW, IF AND AS AND WHEN ANY ADDITION IS MADE IN THE FRESH ASSESSMENT ORDER AS MAY BE PASSED BY THE AO, IN J. RAY MC DERMOTT 44 PURSUANCE TO OUR DIRECTIONS. AS A RESULT, THIS APPE AL IS PARTLY ALLOWED. NOW, WE SHALL TAKE UP ASSESSEES APPEAL IN ITA NO.2309/MUM/2006 FOR A.Y. 2002-03: 11. IT IS NOTED THAT LD. CIT(A) HAS FOLLOWED HIS ORDER FOR A.Y. 1998-99 IN DECIDING THE ISSUES RAISED BEFORE US, AN D THEREFORE, WE DIRECT THE AO TO VERIFY REQUISITE FACTS AND FOLL OW OUR ORDER FOR A.Y. 1998-99 AND ACCORDINGLY, THESE GROUNDS MAY BE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 11.1. THE GROUNDS WITH REGARD TO LEVY OF INTEREST U/S 23 4D ARE CONSEQUENTIAL AND DISMISSED. WE SHALL NOW TAKE UP ASSESSEES APPEAL IN ITA NO.2227/MUM/2009 (PENALTY APPEAL) 12. THIS PENALTY APPEAL IS IDENTICAL TO PENALTY APPEAL OF A.Y. 2000-01 AND ACCORDINGLY, AO IS DIRECTED TO FOLLOW O UR ORDER FOR A.Y. 2000-01 IN ITA NO.2226/MUM/09 NOW, WE SHALL TAKE UP ASSESSEES APPEAL IN ITA NO.8720/MUM/2010 FOR A.Y. 2004-05 THE ASSESSEE HAS RAISED FOLLOWING GROUNDS: GROUND NO. 1: 1.1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DEPUTY DIRECTOR OF INCOME-TAX (INTERNATION AL TAXATION) - 3(1), MUMBAI ('THE DDIT') ERRED IN ISSU ANCE OF NOTICE UNDER SECTION 148 OF THE INCOME-TAX ACT, 196 1 J. RAY MC DERMOTT 45 ('THE ACT') AND COMPLETING THE ASSESSMENT AT AN INC OME OF RS. 14,88,60,060. 1.2 THE APPELLANT PRAYS THAT THE REASSESSMENT PROCEEDINGS BE HELD TO BE BAD-IN-LAW AND THEREFORE LIABLE TO BE QUASHED. GROUND NO. 2 2.1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DDIT ERRED IN HOLDING THAT RS. 5,16,72,024 UNDER TH E CONTRACT D5073 AND RS. 1,32,01,471 UNDER THE CONTRACT D5094 IS TAXABLE AS INCOME OF THE APPELLAN T BY HOLDING THAT THE APPELLANT HAS A PERMANENT ESTABLISHMENT ('PE') IN INDIA. 2.2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DDIT ERRED IN NOT APPRECIATING THAT DURATION OF EAC H CONTRACT D5073 AND D5094 DID NOT EXCEED NINE MONTHS IN ACCORDANCE WITH ARTICLE 5(2)(1) OF THE DOUBLE-TA X AVOIDANCE AGREEMENT BETWEEN INDIA AND MAURITIUS ('DTAA') AND ERRED IN HOLDING THAT THE AGGREGATE DURATION OF ALL THE CONTRACTS WOULD BE CONSIDERED F OR CONSTITUTING PE IN INDIA. THE APPELLANT PRAYS THAT IT BE HELD THAT THE APPELL ANT DOES NOT HAVE A PE IN INDIA AND THEREFORE THE INCOM E OF RS. 5,16,72,024 UNDER THE CONTRACT D5073 AND RS. 132,01,471 UNDER THE CONTRACT D5094 IS NOT CHARGEAB LE TO TAX. GROUND NO. 3 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DISPUTE RESOLUTION PANEL-1 ERRED IN HOLDING THAT TH E APPELLANT HAS A PE IN INDIA UNDER ARTICLE 5(1) OF T HE DTAA IGNORING THE PROVISIONS OF ARTICLE 5(2) OF THE DTAA. THE APPELLANT PRAYS THAT IT BE HELD THAT ARTICLE 5( 1) IS NOT APPLICABLE TO THE APPELLANT AND WITHOUT PREJUDICE, THE APPELLANT DOES NOT HAVE A PE IN INDI A UNDER ARTICLE 5(1) OF THE DTAA. GROUND NO. 4 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE DDIT ERRED IN HOLDING THAT THE LIAISON OFFICE ( LO) OF ANOTHER GROUP COMPANY J. RAY MCDERMOTT MIDDLE EAST, INC. (JRMMEI') CONSTITUTES PE OF THE APPELLAN T AND ACCORDINGLY ERRED IN INCLUDING RS. 6,48,73,495 AS J. RAY MC DERMOTT 46 INCOME OF THE APPELLANT. THE APPELLANT PRAYS THAT IT BE HELD THAT LO OF JRMM EI CANNOT CONSTITUTE PE OF THE APPELLANT. GROUND NO. 5 WITHOUT PREJUDICE TO GROUND NO.4 ABOVE, ON THE FACT S AND CIRCUMSTANCES OF THE CASE, THE DDIT ERRED IN ATTRIBUTING THE TOTAL CONTRACTUAL REVENUES FROM CON TRACTS D5073 AND D5094 AMOUNTING TO RS. 6,48,73,495 AS THE PROFITS ATTRIBUTABLE TO THE PE IN INDIA. GROUND NO. 6 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DDI T ERRED IN CONSIDERING DISPUTED AMOUNT OF RS. 2,03,94,702 PERTAINING TO THE CONTRACT WITH ENGINEE RS INDIA LTD. - THE CONTRACTOR AS INCOME OF THE APPELL ANT. THE APPELLANT PRAYS THAT THE AFORESAID ADDITION BE DELETED. GROUND NO. 7: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE DDIT ERRED IN LEVYING INTEREST UNDER SECTION 23 4A AND 234B OF THE ACT. THE APPELLANT PRAYS THAT THE AFORESAID LEVY BE DELE TED. GROUND NO. 8: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DDIT HAS ERRED IN INITIATING PENALTY UNDER SECTION 271(1)(C) OF THE ACT AND IN HOLDING THAT THE APPELL ANT HAS CONCEALED PARTICULARS OF ITS INCOME AND HAS FURNISHED INACCURATE PARTICULARS OF ITS INCOME WHIC H LED TO PENALTY UNDER THE SAID SECTION. THE APPELLANT PRAYS TO DIRECT THE DDIT TO DROP THE PENALTY PROCEEDING UNDER SECTION 271(1)(C) OF THE A CT. GROUND NO. 9 THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, AND / OR AMEND ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL 13. GROUND NOS. 2, 3, 4 & 5: IT IS NOTED THAT WHILE DECIDING THESE ISSUES IN THE ASSESSMENT ORDER, THE AO HAS RE FERRED TO AND RELIED UPON THE ASSESSMENT ORDERS FOR A.YS. 199 8-99, J. RAY MC DERMOTT 47 1999-00 & 2002-03. THE DRP DID NOT BRING ANYTHING N EW WHILE UPHOLDING THE ASSESSMENT ORDER. 13.1. THESE GROUNDS ARE IDENTICAL TO THE GROUNDS DISPOSE D BY US IN OUR ORDER FOR A.Y. 1998-99, THEREFORE, DECISI ONS AND DIRECTIONS CONTENDED IN OUR ORDER FOR A.Y. 1998-99 SHALL APPLY MUTATIS MUTANDIS ON THIS YEAR ALSO, AND THE AO IS DIRECTED TO VERIFY REQUISITE FACTS AND FOLLOW OUR ORDER FOR A.Y . 1998-99, ACCORDINGLY, THESE GROUNDS MAY BE TREATED AS ALLOWE D IN TERMS OF OUR DIRECTIONS AS CONTAINED IN OUR ORDER FOR A.Y . 1998-99. 14. GROUND NO.6: IN THIS GROUND, THE ASSESSEE IS AGGRIEVED WITH THE ACTION OF LOWER AUTHORITIES IN BRINGING TO TAX AMOUNT OF THE INVOICE RAISED TO M/S ENGINEERS INDIA LTD., WHICH WAS NOT ACCEPTED BY THE SAID COMPANY. 14.1. DURING THE COURSE OF HEARING IT WAS SUBMITTED BY T HE LD. COUNSEL THAT THE SAID AMOUNT WAS BROUGHT TO TAX BY THE AO WITHOUT DISCUSSING AND BRINING COMPLETE FACTS ON RE CORD AND WITHOUT GIVING ADEQUATE OPPORTUNITY OF HEARING TO T HE ASSESSEE. BEFORE THE LD. DRP ALSO THE ACTION OF LD. AO WAS ENDORSED AND UPHELD WITHOUT DISCUSSING THE FACTS PR OPERLY. IT WAS SUBMITTED THAT LAW WAS APPLIED IN A BLIND-FOLDE D MANNER WITHOUT EXAMINING THE ISSUE PROPERLY. FURTHER, THE RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE BOMBAY BENCH IN THE CASE OF DEEP DRILLING (I) PTE. LTD. V. ADIT 21 TAXM ANN.COM 486 (MUMBAI) WHEREIN IT WAS HELD THAT MERELY MAKING A C LAIM OF INCOME WITH A CUSTOMER WITHOUT ANY ENFORCEABLE RIGH T DOES NOT J. RAY MC DERMOTT 48 RESULT INTO ANY INCOME. ON THE OTHER HAND, LD. DR R ELIED UPON THE ORDERS OF THE LOWER AUTHORITIES AND DID NOT RAI SE ANY SERIOUS OBJECTION IF THIS ISSUE WAS SENT BACK TO TH E FILE OF THE AO. 14.2. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. IT IS NOTED THAT AN INVOICE WAS RAISED TO M/S ENGINEER INDIA LTD. FOR AN AMOUNT OF US$ 4649,955/- EQUIVALENT TO RS.2,03,94,702/-. THIS AMOUNT WAS NOT INCLUDED IN THE INCOME BY THE ASSESSEE SINCE THE INVOICE WAS NEITHER BEEN ACCEPTED BY THE SAID COMPANY AND NOR THE SAME HAS BEEN PAID. THE AO INCLUDED THIS AMOUNT IN THE INCOM E OF THE ASSESSEE ON THE GROUND THAT ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. 14.3. WE HAVE CAREFULLY EXAMINED THE STANDS TAKEN BY BOT H THE PARTIES. IT IS AN ACCEPTED PROPOSITION THAT UND ER MERCANTILE SYSTEM OF ACCOUNTING ANY INCOME OR EXPENSES IS TAKE N INTO CONSIDERATION ON THE BASIS OF ITS ACCRUAL IRRESPECT IVE OF ITS ACTUAL RECEIPT OR PAYMENT, AS A CASE MAY BE. BUT, W HAT IS IMPORTANT IS THAT INCOME/EXPENSE MUST FIRST BE ACCR UED. IF AN INCOME DOES NOT EVEN GET ACCRUED, THE SAME CANNOT B E BROUGHT TO TAX MERELY ON UNILATERAL ACTION TAKEN BY THE ASSESSEE BY MERE ISSUING OF AN INVOICE. IT IS NOTED FROM THE FACTS BEFORE US THAT INVOICE RAISED BY THE ASSESSEE HAS NOT BEEN EVEN ACCEPTED BY THE SAID PARTY. THERE IS NOTH ING TO SHOW THAT WHETHER THE WORK FOR WHICH INVOICE WAS RAISED HAS BEEN ACCOMPLISHED OR NOT AND WAS ACCEPTED AS SUCH BY THE SAID J. RAY MC DERMOTT 49 COMPANY. UNDER SUCH CIRCUMSTANCES, THERE ARE SERIOU S DOUBTS IF AT ALL IF ACCRUAL OF THE INCOME HAS TAKEN PLACE. THE LAW IN THIS REGARD IS WELL SETTLED LAW THAT MERE MAKING OF A CLAIM OF INCOME WHICH DOES NOT GIVE RISE TO ANY ENFORCEABLE RIGHT DOES NOT RESULT INTO ANY INCOME. THOUGH THE POSITION OF LAW IN THIS REGARD IS CLEAR, BUT IN ABSENCE OF COMPLETE FACTS B EFORE US WE ARE NOT ABLE TO CONCLUDE THIS ISSUE AT THIS STAGE. WE FIND THAT BOTH OF THE LOWER AUTHORITIES HAD DEALT WITH THIS I SSUE IN HIGHLY SURREPTIOUS AND NON-SPEAKING MANNER. UNDER THESE CIRCUMSTANCES, WE FIND IT APPROPRIATE TO SEND THIS ISSUE BACK TO THE FILE OF THE AO WHO SHALL TAKE GUIDANCE FROM THE OBSERVATIONS GIVEN BY US IN THIS ORDER AS WELL AS O THER JUDGMENTS AS MAY BE PLACED BY THE ASSESSEE BEFORE T HE AO. THE ASSESSEE SHALL ALSO BRING ON RECORD COMPLETE FA CTS WITH REGARD TO THE SUBSEQUENT DEVELOPMENTS THAT MIGHT HA VE TAKEN PLACE WITH REGARD TO REALIZATION OF THE AMOUNT OF T HE INVOICES FROM THE SAID PARTY, FOR WHICH AO SHALL GRANT ADEQU ATE OPPORTUNITY OF HEARING. THE AO SHALL DECIDE THIS IS SUE AFRESH AFTER TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUMS TANCES. THE ASSESSEE IS FREE TO RAISE ALL LEGAL AND FACTUAL ISS UES PERTAINING TO THIS GROUND BEFORE THE AO. THIS GROUND MAY BE TR EATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 15. GROUND NO.7: THIS GROUND DEALS WITH LEVY OF INTEREST; THE SAME IS DISMISSED BEING CONSEQUENTIAL. 16. GROUND NO.8 IS WITH REGARD TO INITIATION OF PROCEEDINGS AND THE SAME IS DISMISSED BEING PREMATURE. J. RAY MC DERMOTT 50 17. GROUND NO.9: THIS GROUND IS GENERAL AND DOES NOT REQUIRE ANY ADJUDICATION AND THEREFORE DISMISSED. 18. GROUND NO.1 IS WITH REGARD TO CHALLENGING THE VALIDITY OF REOPENING U/S 147/148 OF THE ACT. SINCE WE HAVE DEC IDED THE GROUNDS ON MERITS, THEREFORE, ACCEPTING THE REQUEST OF THE PARTIES WE TREAT THIS GROUND AS INFRUCTUOUS AT THIS STAGE. 19. AS A RESULT THIS APPEAL MAY BE TREATED AS PARTLY A LLOWED. NOW, WE SHALL TAKE UP ASSESSEES APPEAL IN ITA NO.8717/MUM/2010 FOR A.Y. 2005-06 INVOLVING FOLLOWI NG GROUNDS: GROUND NO. 1: 1.1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DEPUTY DIRECTOR OF INCOME-TAX (INTERNATION AL TAXATION) - 3(1), MUMBAI ('THE DDIT') ERRED IN ISSU ANCE OF NOTICE UNDER SECTION 148 OF THE INCOME-TAX ACT, 196 1 ('THE ACT') AND COMPLETING THE ASSESSMENT AT AN INC OME OF RS. 14,04,70,150. 1.2 THE APPELLANT PRAYS THAT THE REASSESSMENT PROCEEDINGS BE HELD TO BE BAD-IN-LAW AND THEREFORE LIABLE TO BE QUASHED. GROUND NO. 2 2.1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DDIT ERRED IN HOLDING THAT RS. 7,35,60,175 UNDER TH E CONTRACT D5095 RS. 3,07,41,431 UNDER THE CONTRACT D5094 AND RS.3,46,19,754 UNDER THE CONTRACT D5097 I S TAXABLE AS INCOME OF THE APPELLANT BY HOLDING THAT THE APPELLANT HAS A PERMANENT ESTABLISHMENT ('PE') IN I NDIA UNDER ARTICLE 5(2)(I) OF THE DTAA INDIA AND MAURITI US. 2.2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DDIT ERRED IN NOT APPRECIATING THAT DURATION OF EAC H CONTRACT D5095 AND D5094 & D5097 DID NOT EXCEED J. RAY MC DERMOTT 51 NINE MONTHS IN ACCORDANCE WITH ARTICLE 5(2)(1) OF T HE DOUBLE-TAX AVOIDANCE AGREEMENT BETWEEN INDIA AND MAURITIUS ('DTAA') AND ERRED IN HOLDING THAT THE AGGREGATE DURATION OF ALL THE CONTRACTS WOULD BE CONSIDERED FOR CONSTITUTING PE IN INDIA. 2.3. THE APPELLANT PRAYS THAT IT BE HELD THAT THE APPELLANT DOES NOT HAVE A PE IN INDIA AND THEREFORE THE INCOME OF RS. 7,35,60,175 UNDER THE CONTRACT D5095 AND RS. 3,07,41,431 UNDER THE CONTRACT D5094 AND RS.3,46,19,754 UNDER THE CONTRACT D5097 IS NOT CHARGEABLE TO TAX. GROUND NO. 3 3.1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DISPUTE RESOLUTION PANEL-1 ERRED IN HOLDING THAT TH E APPELLANT HAS A PE IN INDIA UNDER ARTICLE 5(1) OF T HE DTAA IGNORING THE PROVISIONS OF ARTICLE 5(2) OF THE DTAA. 3.2. THE APPELLANT PRAYS THAT IT BE HELD THAT ARTIC LE 5(1) IS NOT APPLICABLE TO THE APPELLANT AND WITHOUT PREJUDICE, THE APPELLANT DOES NOT HAVE A PE IN INDI A UNDER ARTICLE 5(1) OF THE DTAA. GROUND NO. 4 4.1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DDIT ERRED IN HOLDING THAT THE LIAISON OFF ICE (LO) OF ANOTHER GROUP COMPANY J. RAY MCDERMOTT MIDDLE EAST, INC. (JRMMEI') CONSTITUTES PE OF THE APPELLANT AND ACCORDINGLY ERRED IN INCLUDING RS. 13,89,21,358 AS INCOME OF THE APPELLANT. 4.2 THE APPELLANT PRAYS THAT IT BE HELD THAT LO OF JRMMEI CANNOT CONSTITUTE PE OF THE APPELLANT. GROUND NO. 5 5.1. WITHOUT PREJUDICE TO GROUND NO.4 ABOVE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DDIT ERRED IN ATTRIBUTING THE TOTAL CONTRACTUAL REVENUES FROM CON TRACTS D5094, D5094 & D5097 AMOUNTING TO RS. 13,89,21,358 AS THE PROFITS ATTRIBUTABLE TO THE PE IN INDIA. 5.2 WITHOUT PREJUDICE TO GROUND NO.2 AND 3 ABOVE, O N THE FACTS AND CIRCUMSTANCES OF THE CASE, DDIT HAS ERRED IN HOLDING THAT REVENUES OF US$67,20,000/- AND US$ J. RAY MC DERMOTT 52 14,02,830 FROM CONTRACTS D5095 AND D5097 RESPECTIVE LY PERTAINING TO THE WORK CARRIED OUTSIDE INDIA ARE RE LATED TO THE WORK CARRIED OUT IN INDIA AND ACCORDINGLY CHARG EABLE TO TAX IN INDIA. 5.3 THE APPELLANT PRAYS THAT IT BE HELD THAT ONLY T HE PROFITS ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA SHOULD BE TAXED IN INDIA. GROUND NO. 6 6.1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E DDIT ERRED IN CONSIDERING DISPUTED AMOUNT OF RS. 28,63,192 PERTAINING TO THE CHANGE ORDERS IN THE CONTRACT WITH LARSEN & TUBRO- THE CONTRACTOR AS INC OME OF THE APPELLANT. 6.2 THE APPELLANT PRAYS THAT THE AFORESAID ADDITION BE DELETED. GROUND NO. 7: 7.1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DDIT ERRED IN LEVYING INTEREST UNDER SECTI ON 234A, 234B AND 234D OF THE ACT. 7.2 THE APPELLANT PRAYS THAT THE AFORESAID LEVY BE DELETED. GROUND NO. 8: 8.1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE DDIT HAS ERRED IN INITIATING PENALTY UNDER SECT ION 271(1)(C) OF THE ACT AND IN HOLDING THAT THE APPELL ANT HAS CONCEALED PARTICULARS OF ITS INCOME AND HAS FURNISHED INACCURATE PARTICULARS OF ITS INCOME WHIC H LED TO PENALTY UNDER THE SAID SECTION. 8.2 THE APPELLANT PRAYS TO DIRECT THE DDIT TO DROP THE PENALTY PROCEEDING UNDER SECTION 271(1)(C) OF THE A CT. GROUND NO. 9 THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, AND / OR AMEND ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL 20. IT IS NOTED THAT GROUNDS RAISED BY THE ASSESSEE IN THIS APPEAL ARE IDENTICAL TO THE GROUNDS RAISED IN A.Y. 2004-05 EXCEPT GROUND NO.5. THUS, AO IS DIRECTED TO FOLLOW OUR ORDER FOR AY 2004-05 FOR ALL THE GROUNDS EXCEPT GROUND NO 5 WHICH IS DISPOSED AS UNDER. J. RAY MC DERMOTT 53 20.1. DURING THE COURSE OF HEARING, IT HAS BEEN UNANIMOU SLY SUBMITTED BY BOTH THE PARTIES THAT THE ISSUE RAISED IN GROUND NO 5 WAS ALSO COVERED WITH THE DECISION OF THE TRIB UNAL AS WELL AS HIGH COURT IN ASSESSEES OWN CASE FOR A.Y. 2003- 04. 20.2 . WE HAVE GONE THROUGH ORDER OF THE LOWER AUTHORITI ES AND FIND THAT THE ISSUE IS COVERED AS ON DATE BY THE OR DER OF THE TRIBUNAL AS WELL AS HIGH COURT FOR A.Y. 2003-04. TH E TRIBUNAL IN ITS ORDER FOR A.Y. 2003-04 DATED 30.04.2010 IN I TA NO.1557/MUM/2007 DECIDED THIS ISSUE IN FAVOUR OF TH E ASSESSEE AND HELD AS UNDER: 4. THE UNDISPUTED FACTS IN THIS CASE ARE THAT THE ASSESSEE HAD CARRIED OUT CERTAIN PORTION OF THE WORK UNDER T HE CONTRACT OUTSIDE INDIA. THE CIT (APPEALS) HAS EXTRA CTED THE WORK AT PARA 3.11 PAGES 7 TO 10 OF HIS ORDER AND TH E BIFURCATION OF THE WORK DONE OUTSIDE INDIA AND THE WORK DONE WITHIN COUNTRY ARE NOT DISPUTED. AS POINTED OU T BY THE LEARNED CIT(APPEALS), THE ONLY ISSUE IS WHETHER , THE RECEIPTS OF WORK DONE OUTSIDE INDIA, EVEN THOUGH IT IS CONNECTED WITH THE MAJOR PART OF THE CONTRACT, IS T AXABLE IN INDIA OR NOT. 5. THE PREPARATION OF DESIGNS IN THIS CASE IS DONE BY JEBEL ALI, DUBAI AND THE DOCUMENTS WERE TRANSMITTED TO EI L FROM OUTSIDE THE COUNTRY. THE DISTANCE FROM JEBEL ALI TO INDIA IS 1050 NAUTICAL MILES AND THE TRAVEL WITHIN INDIA IS ABOUT 100 NAUTICAL MILES, WHICH MEANS 10% OF THE TOTAL TRANSPORTATION IS WITHIN THE COUNTRY. THE ASSESSEE IN THIS CASE FOLLOWED THE PROJECT COMPLETION METHOD TO RECO GNIZE CONTRACT REVENUES. THE REVENUES PERTAINING TO WORK CARRIED ON WITHIN INDIA AND WORKS CARRIED ON OUTSIDE INDIA HAS BEEN DETERMINED BASED ON ACTUAL ACTIVITIES CARRIED OUT, AND AS ALREADY STATED THERE IS NO DISPUTE ON THIS F ACT. 6. IN SUCH A SITUATION, IN OUR CONSIDERED OPINION T HE FIRST APPELLATE AUTHORITY HAS RIGHTLY OBSERVED THAT SECTI ON 9(1)(I) EXPLANATION 1 PROVIDES THAT THE INCOME FROM BUSINES S J. RAY MC DERMOTT 54 DEEMED UNDER THIS CLAUSE TO ACCRUE OR ARISE IN INDI A, SHALL BE ONLY SUCH PART OF THE INCOME, AS IS REASONABLY ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA . WE ALSO AGREE WITH THE FINDING THAT THE INCOME IN QUESTION SHOULD BE FIRST TAXABLE IN VIEW OF SECTION 5 OF THE ACT RE AD WITH SECTION 9 AND THAT SECTION 44BB CANNOT OVERRIDE SEC TION 5 WHICH IS THE CHARGING SECTION. THE DELHI B BENCH OF THE TRIBUNAL IN THE CASE OF SAIPEM S.P.A. VS. DCIT IN T HIRD MEMBER DECISION REPORTED IN 88 ITD 213 (T.M.) (DELH I) HELD AS FOLLOWS : SEC. 44BB IS NO DOUBT DESCRIBED AS A SPECIAL PRO VISION FOR COMPUTING PROFITS AND GAINS IN CONNECTION WITH THE BUSINESS OF EXPLORATION, ETC. OF MINERAL OILS BUT THE TERMS NOTWITHSTANDING ANYTHING TO THE CONTRARY REFER TO SS. 28 TO 41 AND AS SS. 43 TO 43A. IN OTHER WORDS, S. 44BB IS NO DOUBT A SPECIAL PROVISION BUT ONLY WITH REFERENCE T O THE SYSTEM OF COMPUTATION OF THE TAXABLE INCOME, WHICH WAS EARLIER BEING DONE BY SS. 28 TO 41, ETC. IT CANNOT REPLACE, SUPERSEDE OR LEAN IN FAVOUR OF S. 5 WHICH IS THE CHARGING SECTION WHEREBY THE SCOPE OF TOTAL INCOME OF AN ASS ESSEE WHETHER IT BE OF A RESIDENT OR IT BE OF A NON-RESID ENT IS WORKED OUT. IT WOULD BE NECESSARY IN EVERY CASE WHE THER IT BE THAT OF A RESIDENT OR THAT OF A NON-RESIDENT TO FIRST OF ALL DECIDE AS TO WHETHER A PARTICULAR RECEIPT OR AN ITE M OF INCOME IS LIABLE TO BE INCLUDED IN THE TOTAL INCOME VIS--VIS S. 5 AND IF IT IS TO BE SO INCLUDED THEN THE QUESTI ON WOULD ARISE AS TO HOW THE TAXABLE PART THEREOF IS TO BE C OMPUTED AND AT THIS STAGE S. 44BB STEPS IN AND THE SAID SEC TION HAVING REPLACED THE EARLIER SYSTEM OF COMPUTING THE INCOME WHICH WAS BY RESORT TO PROVISIONS OF SS. 28 TO 41, ETC. THE DECISION TAKEN BY THE AM RENDERS OTIOSE/REDUNDANT THE PROVISIONS OF S. 5 INASMUCH AS ALL ASSESSEES ENGAGED IN THE BUSINESS OF EXPLORATION OF MINERAL OILS WOULD HAVE THEIR INCOME COMPUTED FOR T AXATION PURPOSES ONLY WITH REFERENCE TO S.44BB AND THE ENTI RE EXERCISE OF DECIDING THE QUESTION OF ACCRUAL OF INC OME OR THE PLACE OF ACCRUAL WOULD BECOME INOPERATIVE. THER E WOULD BE NO NEED TO REFER TO THE PROVISIONS OF S. 5 OR FOR THAT MATTER S. 9 IN CONSIDERING THE BACKGROUND LEAD ING TO THE INTRODUCTION OF S. 44BB, THIS WAS NEVER THE INT ENTION OF THE LEGISLATURE AND PROVISIONS OF SS. 5 AND 9 WERE ALWAYS MEANT TO OPERATE AND REMAIN EFFECTIVE ON THE STATU TE BOOK. J. RAY MC DERMOTT 55 SEC. 5 IS THE CHARGING PROVISION AND NO INCOME CAN BE BROUGHT TO TAX UNLESS IT FALLS WITHIN THE SCOPE OF THE SAID SECTION AND THE USE OF THE EXPRESSION SUBJECT TO O THER PROVISIONS OF THE ACT IN S. 5 WOULD MEAN THAT IF A NY OTHER SECTION OPERATES TO EXCLUDE FROM THE TOTAL INCOME O F ANY PERSON ANY INCOME, WHICH OTHERWISE FALLS WITHIN THE BROAD FRAMEWORK OF HIS TOTAL INCOME AS LAID DOWN IN S. 5 SUCH SECTION WOULD PREVAIL. TO EMPHASIS, THE PROVISIONS OF S. 44AB VIS- -VIS THE LEGISLATIVE INTENT ONLY MEAN TH AT THEE REPLACE THE SYSTEM OF COMPUTATION OF INCOME EARLIER ENVISAGED BY APPLICATION OF THE PROVISIONS OF SS. 2 8 TO 41 AND SS. 43 AND 43A, BUT THE PROVISIONS OF S. 5, WHI CH IS THE CHARGING SECTION WOULD REMAIN INTACT AND THESE BY N O MAXIM OF INTERPRETATION WOULD BE SUPERSEDED BY THE PROVISIONS OF S. 44BB. AS PER CIRCULAR NO. 495, DT. 22ND SEPT., 1987, S. 44BB WAS NO DOUBT DESCRIBED AS A SP ECIAL PROVISION FOR COMPUTING PROFITS AND GAINS IN CONNEC TION WITH THE BUSINESS OF EXPLORATION OF MINERAL OIL BUT THESE WERE A MEASURE OF SIMPLIFICATION PROVIDING FOR DETERMINATION OF INCOME OF SUCH TAXPAYERS AT 10 PER CENT OF THE AGGREGATE OF A CERTAIN AMOUNT JINDAL DRILL ING LEASING (ITA NO. 6452/BOM/1991 DT. 30TH APRIL, 1998 ) AND DY. CIT VS. SONAL OFFSHORE DRILLING INC. (ITA N O. 7414/B/1994, DT. 29TH OCT., 2002) APPROVED; NIPPON KOKAN KK & ORS. (ITA NO. 3413/DEL/1988, DT. 20TH JU NE, 1990), SEDCO FOREX INTERNATIONAL DRILLING INC. (ITA NOS. 1426 TO 1430/D/1995, DT. 27TH NOV., 2001 AND SEDCO FOREX INTERNATIONAL DRILLING INC. V. DY. CIT (2000) 67 TTJ (DEL) 670; (2000) 72 ITD 415 (DEL) OVERRULED; CIT V S. AJAX PRODUCTS LTD. (1965) 55 ITR 741 (SC), CWT VS. ELLIS BRIDGE GYMKHANA (1977) 143 CTR (SC) 138; (1998) 229 ITR 1 (SC), CIT VS. E.Y. KHAMBATY (1986) 50 CTR (BOM) 275 : (1986) 159 ITR 203 (BOM), DY. CIT VS. NAGARJUNA INVESTMENT TRUST LTD. (1972) 66 TTJ (HYD)(SB) 33 : (1988) 65 ITD 17 (HYD)(SB), CIT VS. MOTHER INDIA REFRINGER ATION AIRWAYS LTD. (2002) 175 CTR (DEL) 98 APPLIED. 7. SIMILARLY THE MUMBAI D-BENCH OF THE TRIBUNAL IN THE CASE OF MCDERMOTT ETPM INC. VS. DCIT IN ITA NO. 2897/MUM/1996, ORDER DATED 14TH SEPT., 2004 REPORTE D IN 92 ITD 385 (MUMBAI) HELD AS FOLLOWS : THAT THE ASSESSEE CAN BE CHARGED ONLY IN ACCORDANC E WITH S. 9, IS UNDISPUTED, AND AS PER EXPLN. (A) TO S. 9(1)(I), J. RAY MC DERMOTT 56 WHERE PART OF THE OPERATIONS OF BUSINESS ARE CARRIE D OUT OUTSIDE INDIA, ONLY PART OF THE INCOME REASONABLY ATTRIBUTABLE TO OPERATIONS CARRIED ON IN INDIA SHAL L BE DEEMED TO ACCRUE OR ARISE IN INDIA. THE USE OF THE WORD SHALL IN THE SAID EXPLANATION IS UNEQUIVOCALLY IN DICATIVE OF THE LEGISLATIVE MANDATE CONTAINED THEREIN. THE EXPLANATION, IN NO UNCERTAIN TERMS, ENVISAGES ONLY SUCH TYPE OF INCOME TO BE DEEMED TO ACCRUE OR ARISE IN I NDIA, UNDER S. 9(1)(I). THUS, THE INCOME PRESENTLY UNDER CONSIDERATION CANNOT BE SAID TO BE DEEMED INCOME JU ST BECAUSE EITHER THE AGREEMENT WAS SIGNED IN INDIA OR THE INCOME HAS BEEN RECEIVED IN INDIA. THE REQUIREMENTS OF THE EXPLANATION TO S. 9(1)(I) HAVING NOT BEEN MET, THE INCOME IS NOT DEEMED INCOME. SINCE THE INCOME IN QUESTION CAN NOT EVEN BE CONSTRUED TO BE DEEMED INCOME OF THE ASSESS EE. SINCE THE INCOME IN QUESTION CANNOT EVEN BE CONSTRU ED TO BE DEEMED INCOME OF THE ASSESSEE, THERE IS NO TAXAB LE INCOME TO BE COMPUTED AND SO S. 44BB IS INAPPLICABL E. ONLY A PART OF MOBILISATION/DEMOBILISATION WORK, WH ICH IS ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT BY THE A SSESSEE IN INDIA, IS TAXABLE IN INDIA. THE SERVICES RENDERE D BY THE ASSESSEE ARE NOT COVERED BY THE NOTIFICATION BEARIN G NO. GSR-304 (E), DT. 31ST MARCH, 1983 SAIPEM SPA VS. DY. CIT (2004) 86 TTJ (DEL) 1 FOLLOWED. 8. SIMILAR ARE THE DECISIONS IN THE FOLLOWING CASES : 1. ACIT VS. JINDAL DRILLING ITA NO. 6452/BOM/91 2. DCIT VS. SONAT OFFSHORE DRILLING ITA NO. 7414/BO M/94 (APPROVED BY THE BOMBAY HIGH COURT (INCOME TAX APPE AL NO. 508 OF 2007) VIDE ORDER DATED 16TH SEPT., 2008. 3. TRANSOCEAN OFFSHORE INC VS. DCIT ITA NO. 05/DEL/ 2002 4. ACIT VS. ENRON GLOBAL EXPLORATION & PRODUCTION L TD. 5. R & B FALCON DRILLING CO. VS. ACIT. 9. IN VIEW OF THE ABOVE DISCUSSION, WE UPHOLD THE O RDER 20.3. THE REVENUE FILED AN APPEAL BEFORE THE HONBLE HIG H COURT WHEREIN THE APPEAL OF THE REVENUE WAS DISMISS ED BY THE HONBLE BOMBAY HIGH COURT VIDE ORDER DATED 18 TH MARCH 2014 IN ITA NO. 1328/MUM/2011 BY OBSERVING AS UNDER: J. RAY MC DERMOTT 57 4. THE DEPARTMENT AS ALSO THE ASSESSEE PROCEEDED O N THE UNDISPUTED POSITION THAT THE ASSESSEE IS A NON-RESI DENT BASED IN MAURITIUS. IT HAS A PERMANENT ESTABLISHMEN T IN INDIA. THE INCOME FROM THE PERMANENT ESTABLISHMENT IS ASSESSABLE AS BUSINESS INCOME. IT IS IN SUCH CIRCUM STANCES THAT WE DO NOT FIND THAT ANY SUBSTANTIAL QUESTION O F LAW WITH REGARD TO STATUS OF THE ASSESSEE OR HAVING A PERMANENT ESTABLISHMENT OR NOT WILL ARISE FOR CONSIDERATION. 5. THE APPEAL IS CLEARLY DEVOID OF ANY MERITS AND T HEREFORE, IT IS DISMISSED. 6. IT IS DISMISSED EVEN WITH REGARD TO THE QUESTION FRAMED FOR PARAGRAPH NO. 14(B). WE FIND THAT THE CONSISTEN T UNDERSTANDING AND APPROACH OF THE PARTIES AS IS NOW CONFIRMED BY THE HONBLE SUPREME COURT OF INDIA AS WELL IN THE CASE OF COMMISSIONER OF INCOME TAX & ANR VS. HYUNDAI HEAVY INDUSTRIES CO. LTD, (2007) 291 ITR 482 THAT IT IS ONLY THE INCOME OF THE BUSINESS AS IS REASONABLY ATTRIBUTED TO THE OPERATION CARRIED OUT IN INDIA WHICH AS IS REASONABLY ATTRIBUTED TO THE OPERATION CARRIED OUT IN INDIA WHICH CAN BE SAID TO BE COVERED BY SUB-SECTION(1) OF SECTION 9 T HE INCOME TAX ACT, 1961. IN THE PRESENT CASE, AS A FINDING IT HAS BEEN CONCURRENTLY HELD THAT THE RECEIPTS IN US DOLLARS MENTIONED IN PARAGRAPH 4.2 OF THE COMMISSIONER OF INCOME TAX (APPEALS) ARE NOT TAXABLE. THE ONLY ASPECT THAT WOULD BE SAID TO BE COVERED IS THE ONE IN PARAGRAPH NOS.4 AND 4.1 OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). THE TRIBUNAL THEREFORE WAS RIGHT IN UPHOLDING THIS ORDER AND EQUALLY DIRECTING DELETION OF THE INTEREST UNDER SE CTION 234B OF THE INCOME TAX ACT, 1961. 7. WE DO NOT FIND THAT FROM THE FACTUAL EXERCISE UN DERTAKEN BY BOTH THE AUTHORITIES, ANY SUBSTANTIAL QUESTION O F LAW ARISES FOR DETERMINATION AND CONSIDERATION. 8. THE APPEAL IS THEREFORE, DEVOID OF ANY MERITS AN D IS DISMISSED. THUS, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBU NAL AND HONBLE HIGH COURT FOR A.Y. 2003-04, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND ACCORDINGLY GROUND NO.5 IS ALLOWED. J. RAY MC DERMOTT 58 IF INCOME OF THE ASSESSEE IS REQUIRED TO BE BROUGHT TO TAX HERE IN INDIA WITH RESPECT TO ANY PROJECT, THEN THE SAME CAN BE DONE SO IN ACCORDANCE WITH THE AFORESAID ORDERS OF THE TRIBUNAL AS WELL AS HIGH COURT. THEREFORE, WITHOUT PREJUDICE TO OUR DECISION ON OTHER GROUNDS, THE AO IS DIRECTED TO FO LLOW OUR ORDER FOR A.Y. 2004-05 IN ITAT NO.8720/MUM/2010. 21. AS A RESULT THE APPEAL MAY BE TREATED AS PARTLY AL LOWED. NOW WE SHALL TAKE ASSESSEES APPEAL IN ITA NO.8718/MUM/2010 FOR A.Y. 2007-08, INVOLVING FOLLOW ING GROUNDS: I. GROUND NO. 1: 1.1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DEPUTY DIRECTOR OF INCOME-TAX (INTERNATION AL TAXATION) - 3(1), MUMBAI ('THE DDIT') ERRED IN HOLD ING THAT RS. 18,87,60,455 UNDER THE CONTRACT D5680 TAXA BLE AS INCOME OF THE APPELLANT BY HOLDING THAT THE APPE LLANT HAS A PERMANENT ESTABLISHMENT IN INDIA UNDER ARTICL E 5(2)(I) OF THE DOUBLE TAX AVOIDANCE AGREEMENT BETWE EN INDIA AND MAURITIUS(DTAA). 1.2.ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DDIT ERRED IN NOT APPRECIATING THAT DURATIONS OF EA CH CONTRACTS D5680 DID NOT EXCEED NINE MONTHS IN ACCORDANCE WITH ARTICLE 5(2)(I) OF THE DTAA AND ERRED IN HOLDING THAT THE AGGREGATE DURATION OF ALL THE CONTRACT WOULD BE CONSIDERED FOR CONSTITUTING PE IN INDIA. 1.3. THE APPELLANT PRAYS THAT IT BE HELD THAT THE APPELLANT DOES NOT HAVE A PE IN INDIA AND THEREFORE THE INCOME OF RS. 1,85,41,153 UNDER THE CONTRACT D5680 IS NOT CHARGEABLE TO TAX IN INDIA. II GROUND NO.2 2.1 ON FACTS AND CIRCUMSTANCES OF THE CASE, THE DISPUTE RESOLUTION PANEL-1 ('DRP') ERRED IN HOLDING THAT THE APPELLANT HAS A PE IN INDIA UNDER ARTICLE 5(1) J. RAY MC DERMOTT 59 OF THE DTAA IGNORING THE PROVISIONS OF ARTICLE 5(2) OF THE DTAA. 2.2 THE APPELLANT PRAYS THAT IT BE HELD THAT ARTICL E 5(1) IS NOT APPLICABLE TO THE APPELLANT AND WITHOUT PREJUDICE, THE APPELLANT DOES NOT HAVE A PE IN INDI A UNDER ARTICLE 5(1) OF THE DTAA. III. GROUND NO.3 3.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DDIT ERRED IN HOLDING THAT THE LO OF ANOTH ER GROUP COMPANY J. RAY MCDERMOTT MIDDLE EAST, INC. ('JRMMEI') CONSTITUTES PE OF THE APPELLANT AND ACCO RDINGLY ERRED IN INCLUDING RS.9,64,54,393 AS INCOME OF THE APPELLANT. 3.2 THE APPELLANT PRAYS THAT IT BE HELD THAT LO OF JRMMEI CANNOT CONSTITUTE PE OF THE APPELLANT. IV. GROUND NO.4 4.1 WITHOUT PREJUDICE TO GROUND NO.3 ABOVE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DDIT ERRED IN ATTRIBUTING THE TOTAL CONTRACTUAL REVENUES FROM CON TRACT D5680 OF RS. 18,87,60,455 AS THE PROFITS ATTRIBUTAB LE TO THE PE IN INDIA. 4.2. WITHOUT PREJUDICE TO GROUND NO.1 AND 2 ABOVE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DDIT ERRED IN HOLDIG THAT REVENUES OF US$ 14,550,000 IN RESPECT O F CONTRACT D5680 PERTAINING TO THE WORK CARRIED OUTSI DE INDIA IS RELATED TO THE WORK CARRIED OUT IN INDIA A ND ACCORDINGLY CHARGEABLE TO TAX IN INDIA. 4.2 THE APPELLANT PRAYS THAT IT BE HELD THAT ONLY T HE PROFITS ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA SHOULD BE TAXED IN INDIA. V GROUND NO. 5 5.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DDIT ERRED IN LEVYING INTEREST UNDER SECTION 234D OF THE ACT. 5.2. THE APPELLANT PRAYS THAT THE AFORESAID LEVY BE DELETED VI GROUND NO. 6 6.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE DDIT HAS ERRED IN INITIATING PENALTY UNDER SECT ION J. RAY MC DERMOTT 60 271(1)(C) OF THE ACT AND IN HOLDING THAT THE APPELL ANT HAS CONCEALED PARTICULARS OF ITS INCOME AND HAS FURNISHED INACCURATE PARTICULARS OF ITS INCOME WHIC H LED TO PENALTY UNDER THE SAID SECTION. 6.2 THE APPELLANT PRAYS TO DIRECT THE DDIT TO DROP THE PENALTY PROCEEDING UNDER SECTION 271(1)(C) OF THE A CT. VII GROUND NO.7 7.1 THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, AN D/OR AMEND ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. 22. IT IS NOTED THAT GROUNDS RAISED IN THIS APPEAL ARE IDENTICAL TO GROUNDS RAISED BY THE ASSESSEE FOR A.YS. 2004-05 & 2005- 06. THUS, OUR ORDER FOR THESE YEARS APPLIES MUTATIS MUTANDIS TO THE GROUNDS RAISED IN THIS YEAR AND ACCORDINGLY AO IS DIRECTED TO FOLLOW THE SAME. 23. AS A RESULT THE ASSESSEES APPEAL MAY BE TREATED A S PARTLY ALLOWED. NOW WE SHALL TAKE UP REVENUES APPEAL IN ITA NO. 7083/MUM/2010 FOR A.Y. 2006-07 THE REVENUE HAS FILED THIS APPEAL ON FOLLOWING GROU NDS: '1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE ID. CIT(A) ERRED IN DIRECTING THE ASSES SING OFFICER TO DELETE THE AMOUNTS RECEIVED FOR THE CONT RACT WORK DONE OUTSIDE INDIA, IGNORING THE FACT THAT THE SAID CONTRACT AMOUNT IS ATTRIBUTABLE TO ITS PE IN INDIA. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CI T (APPEAL) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF J. RAY MC DERMOTT 61 THE ASSESSING OFFICER RESTORED. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY.' 24. IT IS NOTED THAT THE GROUNDS RAISED BY THE REVENUE IS IDENTICAL TO GROUND NO.5 OF A.Y. 2005-06. SINCE WE HAVE ALREADY DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE BY RELYING UPON THE ORDER OF THE TRIBUNAL AND HIGH COURT FOR A .Y. 2003- 04, THEREFORE, IN THIS YEAR ALSO WE DO NOT FIND ANY FORCE IN THE GROUNDS RAISED BY THE REVENUE, AS NOT DISTINCTION H AS BEEN MADE BY THE EITHER PARTY ON LAW OR ON FACTS. THUS, WE DISMISS THE GROUNDS RAISED BY THE REVENUE. 25. AS A RESULT APPEAL OF THE REVENUE IS DISMISSED. NOW WE SHALL TAKE UP ASSESSEES APPEAL IN ITA NO.7855/MUM/2011 FOR A.Y. 2008-09 INVOLVING FOLLOWI NG GROUNDS: GROUND NO. 1: 1.1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DEPUTY DIRECTOR OF INCOME-TAX (INTERNATION AL TAXATION) - 3(1), MUMBAI ('THE DDIT') ERRED IN HOLD ING THAT RS. 1,85,41,153 UNDER THE CONTRACT D5680 TAXAB LE AS INCOME OF THE APPELLANT BY HOLDING THAT THE APPELLA NT HAS A PERMANENT ESTABLISHMENT IN INDIA UNDER ARTICLE 5(2) (I) OF THE DOUBLE TAX AVOIDANCE AGREEMENT BETWEEN INDIA AN D MAURITIUS(DTAA). 1.2.ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DDIT ERRED IN NOT APPRECIATING THAT DURATIONS OF EA CH CONTRACTS D5680 AND D5725 DID NOT EXCEED NINE MONTH S IN ACCORDANCE WITH ARTICLE 5(2)(I) OF THE DTAA AND ERRED IN HOLDING THAT THE AGGREGATE DURATION OF ALL THE CONTRACT WOULD BE CONSIDERED FOR CONSTITUTING PE IN INDIA. J. RAY MC DERMOTT 62 1.3. THE APPELLANT PRAYS THAT IT BE HELD THAT THE APPELLANT DOES NOT HAVE A PE IN INDIA WITH RESPECT TO THE CONTRACTS D5680 AND D5725 AND THEREFORE THE INCOME OF RS. 1,85,41,153 UNDER THE CONTRACT D5680 AND RS. 7,79,13,240 UNDER THE CONTRACT D5725 ARE NO T CHARGEABLE TO TAX IN INDIA. GROUND NO.2 2.1 ON FACTS AND CIRCUMSTANCES OF THE CASE, THE DISPUTE RESOLUTION PANEL-1 ('DRIP') ERRED IN HOLDIN G THAT THE APPELLANT HAS A PE IN INDIA UNDER ARTICLE 5(1) OF THE DTAA IGNORING THE PROVISIONS OF ARTICLE 5(2) OF THE DTAA. 2.2 THE APPELLANT PRAYS THAT IT BE HELD THAT ARTICL E 5(1) IS NOT APPLICABLE TO THE APPELLANT AND WITHOUT PREJUDICE, THE APPELLANT DOES NOT HAVE A PE IN INDI A UNDER ARTICLE 5(1) OF THE DTAA. 2.3. WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS A ND IN THE CIRCUMSTANCES OF THE CASE, THE DRP HAS ERRED IN CONSIDERING THE APPLICABILITY OF ARTICLE 5(1) OF TH E DTAA IN THE APPELLANT'S CASE, WHICH WAS NOT AN ITEM PROPOSED BY THE DRAFT ORDER PASSED UNDER SECTION 14 4C. 2.4 THE APPELLANT PRAYS THAT IT BE HELD THAT THE POWERS OF THE DRIP ARE RESTRICTED TO CONFIRM, REDUC E OR ENHANCE THE VARIATION AS PROPOSED IN THE DRAFT ASSESSMENT ORDER AND ACCORDINGLY, THE DRIP DIRECTIONS ARE TO BE WITH REFERENCE TO THE OBJECTIO NS TO THE VARIATIONS PROPOSED IN THE DRAFT ORDER. GROUND NO.3 3.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DDIT ERRED IN HOLDING THAT THE LO OF ANOTH ER GROUP COMPANY J. RAY MCDERMOTT MIDDLE EAST, INC. ('JRMMEI') CONSTITUTES PE OF THE APPELLANT AND ACCO RDINGLY ERRED IN INCLUDING RS.9,64,54,393 AS INCOME OF THE APPELLANT. 3.2 THE APPELLANT PRAYS THAT IT BE HELD THAT LO OF JRMMEI CANNOT CONSTITUTE PE OF THE APPELLANT. GROUND NO.4 4.1 WITHOUT PREJUDICE TO GROUND NO.3 ABOVE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DDIT ERRED IN ATTRIBUTING THE TOTAL CONTRACTUAL REVENUES FROM CON TRACT D5680 OF RS. 1,85,41,153 AND FROM CONTRACT D5725 OF J. RAY MC DERMOTT 63 RS. 7,79,13,240 AS THE PROFITS ATTRIBUTABLE TO THE LO AS RE IN INDIA. 4.2 THE APPELLANT PRAYS THAT IT BE HELD THAT ONLY T HE PROFITS ATTRIBUTABLE TO THE LO AS BEING RE SHOULD B E TAXED IN INDIA. V GROUND NO. 5 5.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DDIT ERRED IN NOT FOLLOWING THE APPELLA NT'S OWN ORDER OF THE HON'BLE MUMBAI TRIBUNAL FOR AY 199 7- 98 AND OF THE COMMISSIONER OF INCOME-TAX (APPEALS) FOR AY 2006-07 WHEREIN IT HAS BEEN HELD THAT THE DURATI ON OF EACH CONTRACT SHOULD BE CONSIDERED SEPARATELY FO R CONSTITUTING RE IN ACCORDANCE WITH ARTICLE 5(2)(I) OF THE DTAA. 5.2 THE APPELLANT PRAYS THAT THE DDIT BE DIRECTED T O FOLLOW THE APPELLANT'S OWN ORDERS FOR AY 1997-98 AN D AY 2006-07. VI GROUND NO. 6 6.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE DDIT HAS ERRED IN INITIATING PENALTY UNDER SECT ION 271(1)(C) OF THE ACT AND IN HOLDING THAT THE APPELL ANT HAS CONCEALED PARTICULARS OF ITS INCOME AND HAS FURNISHED INACCURATE PARTICULARS OF ITS INCOME WHIC H LED TO PENALTY UNDER THE SAID SECTION. VII GROUND NO.7 7.1 THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, AN D/OR AMEND ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. 26. IT IS NOTED BY US THAT THE GROUNDS RAISED BY THE A SSESSEE IN THIS YEAR GROUNDS ARE IDENTICAL TO THE GROUNDS R AISED IN EARLIER YEARS. THE UNANIMOUS STAND OF BOTH THE PART IES BEFORE US WAS THAT THE GROUNDS OF THIS YEAR CAN BE DISPOSE D ON THE BASIS OF ORDERS OF THE EARLIER YEARS. ACCORDINGLY, WE DIRECT THE AO TO FOLLOW OUR ORDER OF EARLIER YEARS TO DECIDE T HESE GROUNDS. 27. AS A RESULT APPEAL IS TREATED AS PARTLY ALLOWED. J. RAY MC DERMOTT 64 28. IN THE RESULT, APPEALS FILED BY THE ASSESSEE AND R EVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH MAY, 2016. SD/- (C.N. PRASAD) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER ! / ACCOUNTANT MEMBER MUMBAI; DATED : 06/ 05 /2016 CTX? P.S/. .. # $%&'&($ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !'# / THE RESPONDENT. 3. $# $# % ( ) / THE CIT, MUMBAI. 4. $# $# % / CIT(A)- , MUMBAI 5. ()* # !+ , $# # +- , / DR, ITAT, MUMBAI 6. *. / / GUARD FILE. / BY ORDER, '#( ! //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI