Case Law Details
India-UAE DTAA-Project office used as communication channel is not a Permanent Establishment – Delhi High Court
Brief of the Case
Delhi High Court held In the case of National Petroleum Construction Company vs. DIT that in DIT (International Taxation) v. Morgan Stanley & Company Inc. (2007) 292 ITR 416 (SC), the Supreme Court held that the back office operations carried on at an office would fall within the exclusionary clause of Article 5(3) (e) of the Treaty between India and United States which is also identically worded as Article 5(3) (e) of the India-UAE DTAA. Further the Oxford Dictionary defines the word ‘auxiliary’ to mean “providing supplementary or additional help and support”. In the context of Article 5(3) (e) of the India-UAE DTAA, the expression would necessarily mean carrying on activities, other than the main business functions, that aid and support the Assessee. So, in the context of the contracts in question, where the main business is fabrication and installation of platforms, acting as a communication channel would clearly qualify as an activity of auxiliary character – an activity which aids and supports the Assessee in carrying on its main business. In view of the above, the activity of the Assessee’s Project Office in Mumbai would clearly fall within the exclusionary clause of Article 5(3) (e) of the India-UAE DTAA and, therefore, cannot be construed as the Assessee’s PE in India.
Facts of the Case
The Assessee is a company incorporated under the laws of UAE and is a tax resident of that country. The Assessee is, inter alia, engaged in fabrication of petroleum platforms, pipelines and other equipment and in addition, the Assessee also undertakes contracts for installation of petroleum platforms, submarine pipelines and pipeline coating at various sites. The controversy involved in the present appeals principally relates to the taxability of income earned by the Assessee in respect of a contract entered into by it with ONGC Limited, a public sector enterprise. The aforesaid contract entailed designing, engineering, procurement, fabrication of fully loaded offshore platform and its installation, testing and commissioning at an offshore facility of ONGC. According to the Revenue, the income from the said contract is liable to be taxed in India as the Assessee is stated to have a Permanent Establishment (PE) in India. According to the Assessee, its income from the contract in question is not taxable under the Act by virtue of the Double Taxation Avoidance Agreement between India and United Arab Emirates (UAE) (hereafter referred to as the ‘DTAA’).The Assessee claims that it does not have a PE in India and further, in any event, the income from fabrication and supply of platform is not taxable as the same pertains to the Assessee’s activities outside India.
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