ORDER
K.G. Bansal, Accountant Member. - These cross appeals of the assessee and the revenue were argued in a consolidated manner by the learned counsel for the assessee and the learned DR. Therefore, we think it fit to pass a consolidated order on these appeals.
ITA No. 1754 (Delhi)/2007 - Appeal of the assessee
2. The only ground taken by the assessee is that the learned CIT (Appeals) erred in holding that the assessee had a Permanent Establishment (PE) in India and consequently in taxing its contractual revenue.
2.1 In this connection, it is mentioned in the assessment order that the assessee is a non-resident company, incorporated under the laws of Netherlands. The return of income was filed on 30-10-2001, declaring total income of Rs. 51,53,280. The return was revised in the course of assessment proceedings, in which total income was declared at Rs. 1,00,62,250. The revision was made on account of the revenue received from Ganesh Benzo Plast Ltd. It was found during scrutiny that the assessee earned revenues of Rs. 7,52,08,201 in this year from three parties, namely, ONGC, Cairn Energy and Ganesh Benzo Plast. The Assessing Officer examined the scope of works in the contract and the services rendered by the assessee to these parties. It was found that the assessee carried out geo-technical investigation at drilling locations, which included drilling and sampling, for the ONGC. Further, the assessee carried out geo-physical and geo-technical site investigation for Cairn Energy. The assessee also provided skilled facilities and capacity to perform works for Ganesh Benzo Plast. The Assessing Officer came to the conclusion that these revenues were liable to be taxed under section 44BB of the Act at presumptive rate of 10 per cent of the revenue.
2.2 The matter was agitated in appeal. It was submitted before the learned CIT (Appeals) that the scope of work with the ONGC involved soil investigation for two jack-up exploration drilling locations in Godavari Delta Region. It involved drilling and sampling of two bore holes, on-board laboratory testing and specialized analysis through risk assessment technique. This contract continued for a period of 13 days in the financial year 2000-01. The contract with Cairn Energy involved geo-physical and geo-technical investigation in Gulf of Khambat, off the west coast of India, where the work was undertaken at eight sites, involving investigational approach. The assessee mobilized its own rig and vessel from Singapore for this work. This contract continued for a period of 41 days. The contract with Ganesh Benzo Plast involved execution of work on "Samudra Sarveshak" belonging to ONGC and involved geo-technical investigations and geo-technical services on-board the aforesaid vessel. This contract continued for a period of 37 days. Thus, taking all the three contracts, the period of execution totalled to 91 days. It was further submitted that the assessee did not have a PE in India. In view thereof, the income was not liable to be taxed in view of the provisions contained in section 90(2) of the Act and Articles 5 and 7 of the Treaty for Avoidance of Double Taxation (DTAA) between India and Netherlands. The learned CIT(A) considered the facts of the case and submissions made before him. It was pointed out by him that the argument of non-taxability of the receipts in absence of the PE was not taken up at the time of filing of the return of income. The assessee addressed a letter dated 8-12-2003 to the Assessing Officer in this behalf, who passed the assessment order on 24-3-2004. Thus, the claim had been made before the Assessing Officer regarding non-existence of the PE. It was further mentioned that looking to the contracts, it will be clear that the business operations of the assessee were carried out either in India or in territorial waters of India. Under Article 5, the place of business covers any premises, facilities or exploration, whether or not they are used exclusively for that purpose. Such place may or may not be exclusively used by the assessee for the business. Even if a certain space is available at the disposal of the assessee for carrying out its business, such place will be the "place of business" of the assessee. Coming to the issue whether moving vessels could constitute fixed place of business, it was mentioned that if the vessel is mobilized and brought into the territorial waters of a jurisdiction to carry out business in that jurisdiction, such a vessel would constitute fixed place of business. Therefore, it was held that in respect of all the three contracts, the assessee had a PE in India, the profits of which were taxable on presumptive basis under section 44BB of the Act. Aggrieved by this order, the assessee is in appeal before us.
3. Before us, the learned counsel mentioned that the assessee is a non-resident company based in Netherlands. It had taken up three contracts in this year. The question was whether, the assessee had a business connection in India? The lower authorities decided this matter against the assessee and held that it had a business connection in India. Thereafter, the question was whether, the assessee had a PE in India? This question was also decided against the assessee.
3.1 A reference was made to Article 5 of the DTAA and in particular to paragraph 2(i), under which the PE includes an installation or structure used for exploration of natural resources provided that the activities continue for more than 183 days. Further, a reference was made to paragraph 3 under which a building site or construction, installation or assembly project constitutes a PE only where such site or project continues for a period of more than six months. In the context of these provisions, it was pointed out that even if cumulative days for all the three projects are taken into account, the assessee worked in India for 91 days, which is far below 183 days. Thus, it was argued that the assessee did not have any PE in India.
3.2 In order to support the aforesaid contention, reliance was placed on the decision of Hon'ble Andhra Pradesh High Court in the case of Commissioner Of Income-Tax, A.P-I v. Visakhapatnam Port Trust. [1983] 144 ITR 146 . The question before the court in that case was whether, on the facts and in the circumstances of the case, the assessee is immune from liability either wholly or partly to tax on the basis of the Double Taxation Avoidance Agreement between Germany & India? The facts of that case were that the assessee exported a large amount of iron ore. In order to expedite the operations, the assessee entered into a lengthy contract with a German company, who undertook to supply and deliver a Bucket Wheel Reclaimer as per drawings, and to delegate one engineer-erector for supervising the total erection and one special fitter for installation of electrical equipment. The period of contract was 13½ months. The finding of the Tribunal was that—(i) the actual installation work or assembly work was not undertaken by the German company; (ii) payment in respect of sub-contract had nothing to do with the assembly, erection or installation of the Bucket Wheel Reclaimer; (iii) the German company merely supervised the installation; (iv) the assessee did not recover any money from the German company in respect of any part of erection job; (v) the activity which was carried on by the German company in relation to supply and delivery of the Bucket Wheel Reclaimer cannot lead to an inference of PE in India; (vi) interest is not de hors the contract and it is part of the purchase money and is not a separate source by itself and it forms part of the industrial and commercial profits which are covered by the agreement; and (vii) there is no indebtedness independent of the terms of the contract and interest is not on any debt but it is on account of the terms of the contract itself. The Hon'ble Court referred to paragraphs 1 and 3. It was pointed out that the words "subject to provisions of paragraph 3" indicate that while industrial or commercial income of the foreign enterprise is not taxable in India, the rents, royalties, interest, dividends etc., derived by the foreign enterprise from sources in India are taxable. Obviously, paragraph 3 cannot be construed as excluding these items from taxable income of the PE and, therefore, paragraph 3 has relevance only to paragraph 1. Thereafter, the Court pointed out that the work of construction, installation or assembly was done by the Port Trust and not by the German engineer. Therefore, rendering of supervisory services did not amount to PE of the German company in India. Since the interest was paid on unpaid purchase price, its source was in the agreement and it constituted business profits. Accordingly, it was held that the German company was not liable to be assessed in India. In this context, the Hon'ble Court opined that the words "Permanent Establishment" postulate the existence of a substantial element of an enduring or permanent nature of a foreign enterprise in another country which can be attributed to a fixed place of business in that country. It should be of such a nature that it would amount to a virtual projection of the foreign enterprise of one country into the soil of another country. The learned counsel relied upon this opinion and pointed out that there should be a projection of the foreign enterprise into the soil of another country, which is of enduring or permanent nature, and only then one can come to the conclusion of the PE.
3.3 Further, reliance was placed on the order of Mumbai Bench of the Tribunal in the case of Dy. CIT v. Subsea Offshore Ltd. [1998] 66 ITD 296 . The question before the Tribunal was whether, on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the Deputy CIT was not justified in holding that the assessee's income is taxable in India. Further he also erred in cancelling the assessment order under section 143(3) of the Income-tax Act, 1961? The facts are that the assessee was a non-resident company, incorporated under the laws of the United Kingdom. In pursuance of the contract, it received a sum of Rs. 1,58,48,719 from Mazagaon Dock Ltd. and Rs. 98,39,380 from the ONGC. Under both the agreements, the assessee undertook the work of inspection and repairing of submarine pipeline network, used for exploration of oil and gas, extraction and production with the help of a vessel, especially remotely operated vehicles, which performed the submarine work. The Tribunal pointed out that there was no dispute that the income arose from the business and, therefore, article 7 of the relevant DTAA would be applicable. Thus, the income would be taxable only if the assessee had a PE in India. Further, the Tribunal referred to the observations of the Hon'ble Andhra Pradesh High Court in the case of Visakhapatnam Port Trust (supra) and pointed out that the vessel of the assessee was in India only for a period of 2½ months, which could not be said to be enduring period of time nor it could be said that there was a virtual projection of the business of the assessee into the soil of India. Therefore, the question was decided in favour of the assessee and against the revenue.
3.4 The learned counsel also relied on the ruling of the Authority for Advance Rulings (AAR) in the Advance Ruling A No. P-11 of 1995. In that case, the applicant was a company, incorporated under the laws of Singapore. In the year ended on 31-3-1995, it entered into two contracts with ABC for providing services related to burial of pipelines offshore India. The job executed by the applicant was in the nature of a turn-key sub-contract because the main contract by the ONGC was awarded to XYZ. The contracts of the applicant being in the nature of turn-key sub-contract, all marine vessels, personnel and equipment was provided by it. The duration of the contracts was 7 days and 39 days respectively. The applicant sought an advance ruling as to whether the profits earned by it from the contracts were taxable in India? The AAR referred to article 5 of the DTAA with Singapore and mentioned that the PE meant a fixed place of business through which the business of the enterprise is wholly or partly carried on. Clause (f) of paragraph 2 laid down that a PE would include a mine, an oil or gas well, a quarry or any other place of extraction of natural resources. Under paragraph 3, a building site or construction, installation or assembly project constitutes a PE only if continues for a period of more than 183 days in any year. The scope of work carried on by the applicant showed that it was engaged in an installation and assembly project which pertained to burial of pipelines in the sea-bed. Such activities were held to be covered by paragraph 3 and not by clause (f) of paragraph 2, as claimed by the department. Under paragraph 3, such a work or project could be treated as a PE only if it lasted for more than 183 days in a previous year. The duration of the contracts was 7 days and 39 days only. Therefore, it was ruled that there was no PE of the assessee in India.
3.5 In reply, the learned DR referred to paragraph 3.1 of the order of the learned CIT(A), which described the scope of work under the contracts. The first contract with ONGC involved soil investigation for two jack-up exploration drilling locations in Godavari Delta Region. The investigation inter alia included drilling and sampling of and from two bore holes, on board-laboratory testing and specialized analysis through risk assessment technique. This contract lasted for 13 days and the assessee received a sum of Rs. 51,20,525 in lieu of its work. The second contract with Cairn Energy involved geo-physical and geo-technical investigations in the Gulf of Khambat, for which an integrated site investigation approach was adopted, covering 8 sites. The contract lasted 41 days and the assessee received payment of Rs. 6,15,04,396. The third contract with Ganesh Benzo Plast involved geo-technical investigation and geo-technical services on board "Samudra Sarveshak", a vessel owned by ONGC. The contract lasted for a period of 37 days and the assessee received payment of Rs. 85,83,280. He referred to paragraph 1 of article 5 of the DTAA, which defines the term 'PE' to mean a fixed place of business through which the business of the enterprise is wholly or partly carried on. It was pointed out that the requirement of this paragraph is only the fixed place of business through which the business is wholly or partly carried on. There is no other requirement for constituting the PE. Thereafter, he referred to paragraph 2, which is worded in an inclusive manner and provides that the PE includes, (a) a place of management; (b) a branch; (c) an office, (d ) a factory; (e) a workshop; (f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources; (g) a warehouse in relation to a person providing storage facilities for others; (h) a premises used as sales outlet; and (i) an installation or structure used for the exploration of natural resources provided that the activities continue for more than 183 days. It was pointed out that clauses (a) to (h) contain the requirement of a place, but clause (i) does not contain such requirement as it speaks about an installation or structure used for exploration of natural resources. Since this clause dispenses with the requirement of the place, it was his argument that it stands on different footing from other clauses and that is why continuous activity of more than 183 days is required under this clause for constituting a PE. Further, it was his case that insofar as the contract with ONGC is concerned, there was a fixed place of business in which two bore holes were made and the soil obtained was tested and analyzed in the laboratory. Since, there was a fixed place of business, there was no requirement of the presence of the assessee in India for any particular length of time. It was also his case that the length of time has to be seen in the context of nature of the work. In this case, the work was completed in 13 days and in view thereof, it could be said that the business of the assessee was directly carried on from a place in Godavari Delta Region. Since it was neither an installation or structure, there was no requirement of the work to continue for more than 183 days for constituting the PE. In regard to the agreement with Cairn Energy, it was pointed out that the work involved geo-physical and geo-technical investigation at 8 sites in the Gulf of Khambat. These 8 sites constituted the place of work, where it continued for 41 days. Thus, as in the case of contract with ONGC, there was no requirement that the business should have been carried on for more than 183 days. In regard to the contract with Ganesh Benzo Plast it was pointed out that the work involved providing of geo-technical and geo-physical services on the vessel owned by the ONGC, which was a fixed place of business for the assessee. This work lasted for 37 days. As in earlier two contracts, there was no need for the work to continue for more than 183 days to constitute the PE. The learned DR further articulated his argument by pointing out that paragraph 1 is the main provision regarding the PE, namely, the fixed place of business from which the business of the enterprise is wholly or partly carried on. There was no requirement in this paragraph for continuation of the business at the fixed place for any particular length of time. Therefore, if the work was completed in a shorter period, it will still constitute the PE. Paragraph 2 contains a positive list and clauses (a) to (h ) contain fixed place of business, as also mentioned in paragraph 1. These clauses do not contain requirement for continuation of business for any particular length of time. It is only clause (i) which contains the requirement of continuation of activities for more than 183 days because under this clause there is no fixed place of business but it is an installation or structure used for exploration of natural resources.
3.6 Coming to the cases relied upon by the learned counsel, it was pointed out that the facts of the case of Visakhapatnam Port Trust (supra) were quite different, as the German company was merely supervising the installation and the actual work of erection or assembly was not undertaken by it at its cost. That is why, the court came to the conclusion that it did not constitute the PE although it was opined that the PE postulates the existence of a substantial element of an enduring or permanent nature of a foreign enterprise in another country which can be attributed to a fixed place of business in that country. His case was that enduring or permanent nature should be read in the context of the agreement and if a particular work can be completed in a particular length of time, that particular length of time ought to be taken of enduring or permanent nature. Coming to the case of Subsea Offshore Ltd. (supra), it was pointed out that the work was carried on a moving ship, belonging to the foreign enterprise. The scope of work was to inspect and lay pipelines in the sea-bed. Therefore, it was held that there was no fixed place of business of enduring or permanent nature. The assessee mentioned by the AAR in Advance Ruling A No. P-11 of 1995 was a sub-contractor, carrying on turn-key sub-contract with the help of its vessels, personnel and equipments. The facts of this case were similar to the facts of the case of Subsea Offshore Ltd. ( supra) as the business was carried on-board a moving ship. Thus, it was contended that the learned counsel ignored the provisions contained in paragraph 1 and clauses (a) to (h) of paragraph 2 and jumped to clause (i) of paragraph 2, which deals with installation or structure and not with the fixed place of business.
3.7 In the rejoinder, the learned counsel pointed out that all the paragraphs of article 5 have to be read together. If only paragraph 1 is read, it will render other paragraphs redundant which goes against the principle of construction of the statutes. In this connection, he relied on the decision of Hon'ble Supreme Court in the case of CIT v. D.P. Sandu Bros. Chambur (P.) Ltd. [2005] 273 ITR 1 , a case dealing with the taxation of an amount received on surrender of agency rights under the head "Capital gains" or under the head "Income from other sources". The court pointed out that tenancy right was a capital asset, the gains from which can be brought to tax only under the head "Capital gains". If the machinery provision for computing the capital gains fails, the amount cannot be brought to tax under the residuary head. He also relied on the decision of Hon'ble Supreme Court in the case of Nalinikant Ambalal Mody v. S.A.L. Narayan Row, CIT [1966] 61 ITR 428 . In that case, the question was as to whether the professional receipts after closure of professional activities were chargeable under the head "Profits and gains of business or profession" or under the residuary head. The majority judgment was that the heads of incomes were mutually exclusive and in view thereof the professional receipt could be brought to tax only under business or profession head and not under the residuary head. The case of the learned counsel was that if clause (i) of paragraph 2 was applicable, recourse could not be taken to other clauses of this paragraph or paragraph 1. Since the assessee had quoted two cases in the rejoinder, the learned DR was also permitted to state his case. He pointed out that the rules of interpretation of statutes are not applicable while interpreting the treaties. The treaties are to be understood as the handy work of executives, in which legal niceties cannot be read. Paragraph 1 contains the general definition, while paragraph 2 merely furnishes illustrations without prejudice to generality of paragraph 1 and, therefore, if a case is covered under paragraph 1, it cannot be argued that contents of paragraph 2 will override the contents of paragraph 1. He also referred to paragraph 4, which contains a non obstante clause and enumerates the fixed place of business, which will not be deemed to constitute the PE. It was his case that this paragraph may override paragraph 1, but that cannot be said about paragraph 2.
4. We have considered the facts of the case and rival submissions. The facts of the case are that the assessee is a company incorporated under the laws of Netherlands. In the year under consideration, it carried out three works for the ONGC, Cairn Energy and Ganesh Benzo Plast. The work in respect of ONGC involved drilling two bores in Godavari Delta Region and testing the material obtained on board laboratory. This work lasted for 13 days. The work with Cairn Energy also involved geo-physical and geo-technical investigation in the Gulf of Khambat at eight sites for which the assessee mobilized its own equipment. This work lasted 41 days. The work with Ganesh Benzo Plast was executed on ONGC vessel and involved geo-technical investigation. This work lasted 37 days. Thus, each of the work was of less than 183 days duration and the duration of all the three works was also less than 183 days. Basically, the case of the assessee is that clause (i) of paragraph 2 of Article 5 is applicable. Under this clause, there cannot be a PE as the works activities continued for less than 183 days. As against the aforesaid, the case of the learned DR is that the aforesaid clause is not applicable at all as it was not a case of an installation or structure used for the exploration of natural resources. In fact, the assessee did not erect any structure or installation. Therefore, paragraph 1 of Article 5 was applicable. The further case of the learned counsel was that even under paragraph 1, there could be a PE only if there was a fixed place of business through which the business of the enterprise was wholly or partly carried on, which meant that there was continuity of the works for some length of time. In this connection, the case of the learned DR was that this paragraph does not provide for any length of time and, therefore, if the work continued at a fixed place for a period of time so as to conclude the work, such fixed place will constitute a PE. Having considered the facts of the case, we are of the view that it is not a case of any installation or structure used for exploration of natural resources. Therefore, the aforesaid clause (i) does not provide any clue for determining this issue.
4.1 In the case of Visakhapatnam Port Trust (supra), the facts were that the work of installation or erection was not done by the German company and it merely supervised the installation. It carried on the activity in relation to supply and delivery of Bucket Wheel Reclaimer, and it was held that the German company had no PE in India. Therefore, the observations of the court regarding the PE have to be understood in the light of the facts of that case. The case at hand does not involve supply of any material or supervision. It is for testing of materials on Indian soil or Indian territorial waters on-board Indian ship or on the equipment mobilized by the assessee from Singapore. Since the works were carried on in India, it can be very well said that there was a real projection of the foreign enterprise on to the soil of India. Thus, the only question is whether the presence of 13 days, 41 days and 37 days, aggregating to 91 days, at three difference locations could lead to the inference of the PE under paragraph 1 or clauses (a) to (h ) of paragraph 2. To our mind, clauses (a) to (h) of paragraph 2 are not applicable at all. In particular, it is mentioned that there was no mine, oil or gas well, quarry or any other place of extraction of natural resources. The tests were conducted to find out whether these sites were suitable for exploration of mineral oil or gas. As we shall see subsequently, the assessee had been conducting investigations in past in India and, thus, it has been carrying on such activities on on-going basis, as and when any contract fructifies. [Paragraph 5.2 (infra) 4.2]
4.2 We have now to examine whether the provision contained in paragraph 1 is applicable to the facts of the case. The facts of the case of Subsea Offshore Ltd. ( supra) are not applicable at least to contracts with ONGC and Cairn Energy, as in that case the English company had brought its own vessel in the territorial waters of India for inspection of oil pipelines etc., which stayed in Indian territorial waters for 2 and ½ months. The English company carried out the services at the locations mentioned in the agreement. The Tribunal came to the conclusion that the assessee's vessel remained in India for 2 and ½ months, which could not be said to be the virtual projection of the business of the assessee into the soil of India. We have already mentioned that in the case at hand, the works were performed on Indian soil for testing of soil or water. For all the three works, the assessee had a fixed place of business in the sense that it could complete the works. Further, the contract with Cairn Energy involved taking samples from eight places and testing them on the equipment of the assessee and, thus, it was not a works contract. Therefore, the facts are distinguishable. Advance Ruling A. No. P-11, although it does not constitute a precedent dealt with the services rendered by a Singapore company for burial of pipelines in the Indian territorial waters. The well was not owned or operated by the Singapore company, which belonged to the ONGC. The services were performed for 7 days and 39 days respectively. However, in the instant case, the work was not regarding burial of pipe- lines in the oil wells owned by the ONGC. Rather, the works related to independent gathering of samples and testing thereof. The decision of the AAR in P. No. 24 of 1996 was also in relation to installation of pipelines and their repair. The Authority pointed out that the ship from which the work was carried out constituted the place of business. However, further requirement that the work was carried out for a reasonable amount of time was not satisfied because one foreign enterprise worked on a ship for 68 days while the other for 27 days. Thus, both these cases were in respect of installation or structure used for extraction of oil or gas, leading to the requirement of a particular length of time. Having considered the facts of this case also, we are of the view that they are not in pari materia with the facts of the case at hand for the reason that the works were carried out in the instant case on Indian soil and territorial waters on-board an Indian ship. Further, the assessee has been undertaking these activities on an on-going basis and not as an isolated work. We have also considered the submissions of the learned counsel to the effect that if the case falls under a particular clause, then, it cannot be considered under any other clause or under any other paragraph. The argument of the learned DR in this respect was that paragraph 1 contains the principal rule for deciding whether there is a PE or not. Paragraph 2 enlarges the ambit. Wherever fixed place is available, there is no requirement of time in this paragraph and such requirement exists only in respect of installation and structure. Paragraph 3 is not applicable at all as it is not a case of building site or construction, installation or assembly project, etc., wherein there is a requirement of a particular length of time. Paragraph 4 contains a non obstante clause, which overrides the provisions contained in paragraphs 1, 2 and 3. Looking to the wording of paragraph 4, it cannot be said that paragraph 3 or clause (i) of paragraph 2 can override paragraph 1. We find that the cases cited by the learned counsel in this behalf relate to classification of an income under one or the other head and it was held that if an income falls under one head, it cannot be brought to tax under any other head. We do not have the question regarding the head of income before us. It is equally true that strict rules of interpretation of statutes are not applicable to take interpretation of agreements between two countries, as these are handy works of administrators and not legal experts. Commentary on OECD model tax convention, referred to by the ld. DR. mentions that the place of business has to be a fixed one. Thus, there has to be a link between the place of business and a geographical point. It is immaterial how long an enterprise operates in the other Contracting State if it does not do so at a distinct place, but this does not mean that the equipment constituting the place of business has to be actually fixed to the soil on which it stands. It also mentions that the words "through which" must be given a wide meaning so as to apply to any situation where activities are carried out on a particular location which is at the disposal of the enterprise. Thus, an enterprise engaged in paving a road will be considered to be carrying on its business through the location where the activity takes place. However, it also mentions that where the place of activity is to be moved, there will be some difficulty in determining whether there is a single place of business. In this connection, we may reproduce paragraphs 4.6, 5 and 5.1 from the Commentary, which read as under :—
"4.6 The words "through which" must be given a wide meaning so as to apply to any situation where business activities are carried on at a particular location that is at the disposal of the enterprise for that purpose. Thus, for instance, an enterprise engaged in paving a road will be considered to be carrying on its business "through" the location where this activity takes place.
5. According to the definition, the place of business has to be a "fixed" one. Thus, in the normal way there has to be a link between the place of business and a specific geographical point. It is immaterial how long an enterprise of a Contracting State operates in the other Contracting State if it does not do so at a distinct place, but this does not mean that the equipment constituting the place of business has to be actually fixed to the soil on which it stands. It is enough that the equipment remains on a particular site.
5.1 Where the nature of the business activities carried on by an enterprise is such that these activities are often moved between neighbouring locations, there may be difficulties in determining whether there is a single "place of business" (if two places of business are occupied and the other requirements of article 5 are met, the enterprise will, of course, have two permanent establishments). As recognized in paragraphs 18 and 20 below a single place of business will generally be considered to exist where, in light of the nature of the business, a particular location within which the activities are moved may be identified as constituting a coherent whole commercially and geographically with respect to that business."
On consideration of various case laws and the commentary above, it is clear that no length of time is prescribed in respect of paragraph 1. To our mind, in such a situation if the place of business is available to the assessee for the period in which its independent work can be completed, it shall constitute a PE and it is accordingly held.
5. In the alternative and without prejudice to the arguments in respect of paragraph 1, the case of the learned DR was that payments in respect of the works carried out by the assessee constitute fees for technical services as understood in clause (b) of paragraph 5 or article 12, under which "fees for technical services" mean payment of any kind for rendering any technical or consultancy service if such service makes available technical knowledge, experience, skill, know-how or process, or consists of development and transfer of a technical plan or technical design. However, as per paragraph 7, such fees are to be considered under article 7 if the enterprise carries on the business through a permanent establishment in the other Contracting State. It was his case that since the assessee has PE in India, the fees for technical services will also become liable to tax under article 7.
5.1 In reply, the learned counsel pointed out that such was not the case of the revenue even before the learned CIT(A) and, thus, such a plea could not be raised at this stage. However, his attention was drawn towards the decision of Hon'ble Bombay High Court in the case of B.R. B.R Bamasi v. Commissioner Of Income-Tax, Bombay City Ii [1972] 83 ITR 223 , in which it was held that a defendant can raise any plea as a tool to defend the order of the CIT(A) although it may not be allowed to use that tool as a weapon to assail the order. Thus, so long as the liability does not exceed the liability determined as per the order of the CIT(A), any plea can be taken by the defendant. Thereafter, he did not pursue this line of argument. Revenue is a defendant in this case and as per the aforesaid decision, it can defend the order of the CIT(A) by raising any plea or ground. Therefore, this argument of the learned counsel is dismissed.
5.2 On merits, he relied on the order of Bangalore Bench of the Tribunal in the case of ITO v. De Beers India Minerals (P.) Ltd. [2008] 297 ITR (AT) 176 . In that case, the assessee was engaged in the business of prospecting and mining diamonds for which it was granted licenses by State Governments of Karnataka, Andhra Pradesh and Chhatisgarh. It engaged Fugro of Netherlands (the assessee at hand - also see paragraph 4.1) for performing air-borne geographical services on the helicopter hired by the assessee, process data and provide reports. The question was whether the payments made under the agreement constituted fees for technical services. The Tribunal pointed out that Fugro compiled data, processed it and delivered the results to the assessee who would further process the data to determine probable targets. Payments in respect of the services rendered by Fugro could not be said to be fees for technical services for the reasons that - (i) there was no transfer of technical knowledge to the assessee, and (ii) there was no transfer of technical plans or designs. He also relied on a number of other cases including Raymond Ltd. v. Dy. CIT [2003] 86 ITD 791 (Mum.) , C.E.S.C. Ltd. v. Dy. CIT [2003] 87 ITD 653 (Kol.)(TM) etc.
5.3 In the rejoinder, the learned DR pointed out that the provisions of Indo-US Treaty were applied in the case of Raymond Ltd. (supra), which cannot be done as a sovereign is entitled to enter into different kinds of treaties with different countries in respect of the same matter. It was also pointed out that the question regarding production and transfer of technical design or plan was not considered. The case of De BeersIndia Minerals (P.) Ltd. (supra) was in respect of air borne geographical services, which is not the case here.
5.4 We have considered the facts of the case and rival submissions. We find that the issue has been considered in all its aspects in the case of De Beers India Minerals (P.) Ltd. (supra). The difference in facts is only that in that case, services were performed from helicopter hired by that assessee, while the services are performed in this case on the vessel owned by the ONGC and in Godavari Delta Region. This difference does not make any difference to the conclusion for the reason that there is no transfer of knowledge or skill or expertise in this case as was in that case. The assessee has provided results of its investigations and not the technical knowledge or skill etc. The assessee has also not provided any technical plan or design as it has merely supplied the data, which will be used subsequently by the principals for locating suitable sites for exploration. Therefore, the case is fully covered by the aforesaid order and in view thereof, we need not go into the other cases relied upon by the learned counsel. Following that order, it is held that the payment did not amount to fee for technical services.
ITA No. 269 (Delhi)/2007 - Appeal of the revenue
6. The only ground taken by the revenue in this case is that the learned CIT (Appeals) erred in law and on facts in allowing relief amounting to Rs. 3,16,48,030 on account of mobilization/demobilization charges included by the Assessing Officer in the gross revenue for computing presumptive income under section 44BB.
7. The case of the learned DR was that the issue stands covered squarely in favour of the revenue by the decision of Uttarakhand High Court, the jurisdictional High Court, in the case of Sedco Forex International Inc. v. CIT [2008] 299 ITR 238 , in which it was held that section 44BB does not take into account the income but the receipts. The relevant portion of the judgment at page 247 is reproduced below for ready reference :—
"We very respectfully submit that in the judgment Ishikawajma-Harima Heavy Industries Ltd.'s case (supra), Hon'ble Supreme Court has dealt with the assessment of a non-resident company on its income as per provisions of section 5 and section 9 of the Income-tax Act. Here in the present case, provisions of section 5 and section 9 are not attracted. Section 4 is a charging section and section 5 contains the scope of total income, which provides that subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income as described under this section and section 9 provides the incomes deemed to accrue or arise in India in the contingencies described under this section. Therefore, section 5 and section 9 both are aimed at the income for the taxability under section 4 of the Act, while section 44BB does not take into account the income for calculating the aggregate amount to calculate 10 per cent profit and gains. Profit and gains is a type of income to be taxed under a legal fiction i.e., @ 10 per cent of the amount specified in sub-section (2) of section 44BB. Section 44BB is a special provision relating to non-resident assessee who is providing services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of mineral oils in or outside India. The section is a complete code in itself. Thus, the reliance placed by Sri Porus Kaka, learned counsel for the assessee, is misplaced, as we have observed that the amount referred in sub-section (2) of section 44BB are four types of amounts and all the four types of amounts are mutually inclusive and has to be taken into account either all of them or any of them and its clauses themselves provide that whether the payment is made inside India or outside India."
7.1 He also relied on the decision of the jurisdictional High Court in the case of CIT v. Halliburton Offshore Services Inc. [2008] 300 ITR 265 (Uttarakhand), in which it was specifically held that all amounts either paid or payable (whether in India or outside India) or received or deemed to be received (whether in India or outside India) are mutually inclusive, which have to be included in the receipts specified in sub-section (2) of section 44BB. The relevant portion of the judgment at page 269 is reproduced below :—
"Thus, it is clear from the perusal of section 44BB that all the amounts either paid or payable (whether in India or outside India) or received or deemed to be received (whether in India or outside India) are mutually inclusive. This amount is the basis of determination of deemed profits and gains of the assessee at the rate of 10 per cent. Therefore, in our view, the Tribunal fell into error in not appreciating the difference between the amount and the income. Amount paid or received refers to the total payment to the assessee or payable to the assessee or deemed to be received by the assessee, whereas income has been defined under section 2(24) of the Income-tax Act and section 5 and section 9 deal with the income and accrued income and deemed income. Section 4 is the charging section of the Income-tax Act and definition as well as the incomes referred in sections 5 and 9 are for the purpose of imposing the income-tax under section 143(3). Section 44BB is a complete code in itself. It provides by a legal fiction to be the profits and gains of the non-resident assessee engaged in the business of oil exploration at the rate of 10 per cent of the aggregate amount specified in sub-section (2). It is not in dispute that the amount has been received by the assessee-company. Therefore, the Assessing Officer added the said amount which was received by the non-resident company rendering services as per provisions of section 44BB to the ONGC and imposed the income-tax thereon."
Thus, his case was that all the receipts of the assessee are to be taken into account for working out the presumptive income under section 44BB.
7.2 In reply, the learned counsel pointed out that the issue regarding payments outside India is not covered by the decision of jurisdictional High Court in the case of aforesaid Sedco. It was his case that only charges in respect of mobilization/demobilization within Indian territorial waters could be included. For this purpose, he relied on the order of Chennai Bench of the Tribunal in the case of Asstt. CIT v. Dynavision Ltd. [2004] 88 ITD 213 . We find that this case does not deal with the issue at hand, as it deals with computation of book profits under section 115J. Further, he relied on the order of ITAT, Delhi, in the case of R&B Falcon Drilling Co. v. Asstt. CIT [2007] 14 SOT 281 , in which it was held that only that part of receipt of mobilization charges, which was attributable to activities carried out in India, was to be included in the receipts for the purposes of computing presumptive income under section 44BB. It was also his case that there was no High Court decision in this matter and, therefore, the order of the Tribunal may be followed.
7.3 We have considered the facts of the case and rival submissions. The question before the court in the case of Sedco Forex International Inc. (supra) was whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the inclusion of mobilization charges while calculating the aggregate amount referred to in sub-section (2) of section 44BB of the Income-tax Act ? The facts do not disclose whether the payments were in respect of mobilization outside India or within India, but as pointed out earlier, the court held that the impugned amount was includible as it constituted a receipt. The issue becomes very clear from the decision in the case of Halliburton Offshore Services Inc. (supra), in which it was mentioned that it is clear from the perusal of section 44BB that all amounts either paid or payable (whether in India or outside India) or received or deemed to be received (whether in India or outside India) are mutually inclusive, and includible in the receipts mentioned in sub-section (2) of section 44BB. Thus, there is a clear authority of the jurisdictional High Court that all amounts mentioned in sub-section (2) are to be included for the purpose of calculating deemed income on the basis of receipts. There is no doubt that the assessee has received the amount and, thus, the same is includible in the receipts for working out the presumptive income.
8. In the result, the appeal of the assessee is dismissed, and the appeal of the revenue is allowed.