Duration of 12 months specified to constitute a PE is activity specific

Bellsea Ltd Vs ADIT (ITAT Delhi)

A building site or an assembly project can only be construed at fixed place of business only when an enterprise commences its activities at the project site. Any activity which may be related or incidental but was not carried out at the site in the source country would clearly not be construed as a PE. Albeit, preparatory work at the site itself can be counted for the purpose of determining of duration of PE. However, in the present case there is no such allegation or material on record that any kind of preparatory work had started at the installation sites prior to ^4th of Jan 2008. The period from which it can be reckoned that enterprise has started to perform the activities in connection with installation project or site etc. is when the actual purpose of the business activity had started. The performance of the activities in the present case can only be reckoned from ^4th January, 2008 (even though ld. Counsel stated that first mobilisation of vessel/barge was 23^rd February, 2008); and not before that as the preparatory work if any, was for tendering purpose and to get the contract.

 In so far as the date of completion, the Contract provides the completion date of ^1st August, 2008, whereas as per the material placed on record and also the payment schedule etc., points out that all the activities connected with the project including the receiving of the payments was before 30^th September 2008 and even the completion certificate mentions 30^th September 2008. Though certain formalities for final completion certificate may have exceeded one or two months but still it will not make the continuity of the activity where it has been brought on record that the last barge sailed out or was decommissioned from India on 25^th September, 2008 and the entire payments were received on or before that date. The activity qua the project comes to an end when the work gets completed and the responsibility of the contractor with respect to that activity comes to end. Here activity of the assessee qua the project as per the terms of contract had come to an end on or before 30^th September, 2008 for the reason that; firstly, last sail out of barge/vessel was 25^th September 2008 and Customs authorities have also certified the demobilisation by this date; secondly, all the payments relating to contract work were received by the assessee much before the closing of September, 2008; thirdly, the completion certificate too mentions the date of completion as 30^th September, 2008, though the formalities of final completion certificate may had exceed uptill November 2008, but the date mention for completion in the certificate is 30^th September 2008 only; and lastly, there is nothing on record to suggest that any activity post completion has been carried out beyond 31^st December, 2008 or the project of the assessee was not completely abandoned before the period of 12 months. The contentions raised by the Ld. CIT DR in his submissions, both for the starting period and final end date of the installation project is without any factual material to support. His inference are based on presumptions that for carrying out such a work and to comply with the certain conditions of Contract there must have been substantive activity before the effective date; and after the date of decommissioning of the project/ demobilisation certain formalities must have been carried out. Such a contention sans any corroborative material cannot be accepted, because the onus is heavily upon the revenue to establish that that assessee’s activity had crossed the threshold period of 12 months and hence constitutes PE in India in terms of Article 5(2)(g) so as to tax the receipts in India as per Article 7.

FULL TEXT OF THE ITAT JUDGMENT

The aforesaid appeal has been filed by the assessee against final assessment order dated 13.10.2011, passed u/s 143(3)/ 144C (13) of the Income Tax Act, 1961, by Assistant Director of Income Tax (International Taxation) Circle 1(1), New Delhi (hereinafter called the A0), in pursuance of the directions given by the Dispute Resolution Panel (DRP), vide order dated 02.08.2011 for assessment year 2008- 09. In grounds of appeal assessee has raised following grounds:-

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