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 23rd 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 30th September 2008 and even the completion certificate mentions 30th 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 25th 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 30th September, 2008 for the reason that; firstly, last sail out of barge/vessel was 25th 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 30th 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 30th September 2008 only; and lastly, there is nothing on record to suggest that any activity post completion has been carried out beyond 31st 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:-
1. “On the facts and in the circumstances of the case and in law, the learned Assistant Director of Income-tax (International Taxation) – 1(1) (‘ADIT’) has erred in proposing and the Dispute Resolution panel (DRP’) has further erred in upholding / confirming the action of the ADIT in holding that the activities of the Appellant constitutes a Permanent Establishment (‘PE’) under Article S(2)(g) of the Double Taxation Avoidance Agreement between India and Cyprus (‘Tax Treaty’) and thereby computing taxable income of Rs. 5,84,96, 79S (being 10% of gross receipts of Rs. 58,49,67,946) by applying provisions of Section 44BB of the Income-tax Act, 1961 (‘IT Act’).
2. On the facts and in the circumstances of the case and in law, the learned ADIT has erred in proposing and the DRP has further erred in upholding / confirming that the Appellant (who was a subcontractor) was responsible for multifarious functions under the contract and not mere rock placement functions by incorrectly referring to scope of work of the main Contractor (Allseas Marine Contractors SA).
3. 0n the facts and circumstances of the case and in law, the learned ADIT has erred in proposing and the DRP has further erred in upholding / confirming the date (i.e. September 2007) of visit of the employee for collection of data and information for tendering of the contract as the date of commencement for computing the threshold period of the PE instead of April 2008 when the project execution started or at best 25 February 2008 when the vessels arrived in India for the purpose of execution of project.
4. On the fact and circumstances of the case and in law, the learned ADIT has erred in not granting credit of taxes withheld of Rs. 8,77,45,192.
5. On the facts and circumstances of the case and in law, the learned AD IT has erred in levying interest of Rs. 1,06,22,3 76 under section 234B of the IT Act despite the fact that there was no tax payable after granting credit of tax deducted at source and even otherwise, the Appellant was not liable to discharge any advance tax, since it is a non-resident whose entire income is tax deductible at source.
6. On the facts and circumstances of the case and in law, the Learned ADIT has erred in initiating penalty proceedings under section 271(1)(c) of the I. T. Act.”
2. The facts in brief are that the assessee company, Bellsea Limited is a company incorporated in Cyprus and is a tax resident of Cyprus. The assessee is mainly engaged in the business of dredging and pipeline related services to oil and gas installations. During the relevant financial year, the assessee was awarded a contract by Allseas Marine Contractors SA (herein after referred to as AMC) for placement of rock in sea bed for protection of gas pipelines and umbilical of subsea structures in oil and gas field developed at Krishna Godavari Basin, East Coast of India. Under the terms of the contract, the work was intended to commence from 4th January, 2008 which has been mentioned as “effective date” in the contract. Under the said contract itself, the completion of the work was reckoned from the date issuance of completion certificate by AMC. Since the completion certificate was issued in the month of September, 2008, the completion date was thus taken as 30th September, 2008. Thus, according, to the assessee since the contract lasted for less than 12 months which is the threshold period for the establishment of PE in India in terms of Article 5(2) (g), of India Cyprus DTAA, therefore, it was claimed by the assessee that no income earned from such contract can be attributed or taxed in India. During the course of assessment proceedings, the assessee filed a copy of the contract, work completion certificate, certificate issued by Custom Authorities for certifying the date of conversion and reversion of the vessels, i.e., arrival and departure of the vessels in India. The assessee’s submission before the AO in this regard has been dealt at pages 2 and 3 of the impugned assessment order. Ld. AO after examining the scope of work, deduced that assessee was carrying various functions as per the contract which has been enumerated at page 4 of the assessment order which for the sake of ready reference is reproduced herein below:-
“5.2 Upon examination of scope of work of the assessee the following functions to be performed by the assessee are noted-
-Detailed engineering, design and analysis
-Procurement of bulk items and material and equipment
-Manufacture, fabrication and testing
-QA/QC
-Project planning
-Interface management
-Transportation
-Pre-engineering and pre-construction surveys
-Sea-bed preparation
-Pre- Trenching
-Post trenching
-Installation of offshore and onshore facilities
-Burial/Engineered Backfill
-Post -installation and as built survey
-Pigging and hydro-testing of all pipelines and subsea flow-line and chemical jumpers
-Pre commissioning of the subsidiary-sea production system.
