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The Tax Publishers National Petroleum Construction v. DIT [IT Appeal Nos. 143, 144 & 533 of 2013 and 795 of 2014, dt. 29-1-2016] : 2016 TaxPub(DT) 0858 (Del-HC) Reading of a project PE *Facts:* Assessee a resident of UAE was in the business of fabrication of petroleum platforms, pipelines and other equipment also undertaking contracts for installation of petroleum platforms, submarine pipelines and pipeline coating was awarded a global tender by ONGC for setting up a project called 4 well Platform project. Off shore deliveries were made of the fabricated equipment from Abu Dhabi. Some parts of the contract was done by another entity called Arcadia Shipping Limited. There were feasibility studies, project pre-assessment work, date of contract and different milestones in the project. The assessing officer read the whole project to be a single project and since the tenure of the project exceeded 9 months up to 2 years read a project PE under article 5(2)(h). A dependent agency PE (DAPE) was also read out of its relationship with a sub-contractor entity called Arcadia Shipping Limited. The profits were not to be taxed thus under section 44BB due to attribution and thus based on similar profits in the industry an attribution of 25% was applied by the assessing officer also affirmed with slight modifications on principle of offshore delivery alone not forming part of Indian taxable income by DRP. ITAT sounded the views of the lower authorities holding offshore delivery part was outside the scope of tax rest of it taxable as there existed a PE. On further appeal to the High Court -- Held that there was no project or DAPE PE for the assessee in India. No attribution of income is possible. For the technical services alone FTS clause will stand to apply on presumptive basis. Decision in favour of the assessee. -- Preparatory or ancillary activities or date of contract is not the trigger point to read the 9 month period but "effective" commencement of the project is the cut off to measure the PE. This may be fact specific to be seen from when the project site control was established. This was found to be less than 9 months so no project PE arose. -- As for DAPE through Arcadia Shipping Limited (ASL) it was found that ASL had its own team and was an independent contractor on facts and had no influence or assignment of roles by National petroleum thus no DAPE could be read into. Sub-contractor activities cannot be superimposed to read a project PE or a DAPE. -- "Long interruptions" in project also to be excluded to determine project PEs tenure. Long interruption is to be interpreted on facts. PE means a certain permanency, thus interim interruptions cannot form part of the tenure of a project PE. -- Assessee filed a return citing themselves as a PE retracted later on at the time of assessment -- PE existence is to be on facts no promissory estoppel to operate on the same. -- FEMA regulations requiring one to open project office and the tenure of this may not be an indicator to the actual tenure of project PE's existence again to be inferred on facts. -- Meaning of PE was read from Philip Baker's commentary as "permanent" is relative and not synonymous with "everlasting"; it was used only in "contradistinction to something fleeting, transitory, temporary or casual" from AAR In Re. P. No. 24 of 1996 : (1999) 237 ITR 798 (AAR). -- As to why preparatory and ancillary activities cannot constitute a PE quoted from Klaus Vogel - "It is recognised that such a place of business may well contribute to the productivity of the enterprise, but the services it performs are so remote from the actual realisation of profits that it is difficult to allocate any profit to the fixed place of business in question. Examples 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". -- How to reckon the tenure of a project PE also quoted from Klaus Vogel -- the minimum period begins when the enterprise starts to perform business activities on the spot in connection with a building site or construction or assembly project. The term 'on the spot' should, in these instances, not necessarily be taken to denote the actual place where the building works, etc., are to be accomplished, for instance. -- In cases where a planning office for the construction work is installed at some other place. In such an event, preparatory and ancillary work is already connected with the building works proper, provided the former directly serve the operation of the building site (likewise OstBMF 3 SWI 19 (1993): DTC Austria; USSR). Providing for such an early beginning of the minimum period is the best way of taking the technical and economic nature of building works into account and it also avoids the practical difficulties of having to draw the line between ancillary activities and 'building works proper'.... -- Assessee will be assessed under section 44BB on presumptive basis with no deductions on the services rendered onshore as this income arose in India. Offshore delivery of material to not to form part of assessable income in India.

The Tax Publishers

National Petroleum Construction v. DIT [IT Appeal Nos. 143, 144 & 533 of 2013 and 795 of 2014, dt. 29-1-2016] : 2016 TaxPub(DT) 0858 (Del-HC)

Reading of a project PE

Facts:

Assessee a resident of UAE was in the business of fabrication of petroleum platforms, pipelines and other equipment also undertaking contracts for installation of petroleum platforms, submarine pipelines and pipeline coating was awarded a global tender by ONGC for setting up a project called 4 well Platform project. Off shore deliveries were made of the fabricated equipment from Abu Dhabi. Some parts of the contract was done by another entity called Arcadia Shipping Limited. There were feasibility studies, project pre-assessment work, date of contract and different milestones in the project. The assessing officer read the whole project to be a single project and since the tenure of the project exceeded 9 months up to 2 years read a project PE under article 5(2)(h). A dependent agency PE (DAPE) was also read out of its relationship with a sub-contractor entity called Arcadia Shipping Limited. The profits were not to be taxed thus under section 44BB due to attribution and thus based on similar profits in the industry an attribution of 25% was applied by the assessing officer also affirmed with slight modifications on principle of offshore delivery alone not forming part of Indian taxable income by DRP. ITAT sounded the views of the lower authorities holding offshore delivery part was outside the scope of tax rest of it taxable as there existed a PE. On further appeal to the High Court --

Held that there was no project or DAPE PE for the assessee in India. No attribution of income is possible. For the technical services alone FTS clause will stand to apply on presumptive basis. Decision in favour of the assessee.

-- Preparatory or ancillary activities or date of contract is not the trigger point to read the 9 month period but "effective" commencement of the project is the cut off to measure the PE. This may be fact specific to be seen from when the project site control was established. This was found to be less than 9 months so no project PE arose.

-- As for DAPE through Arcadia Shipping Limited (ASL) it was found that ASL had its own team and was an independent contractor on facts and had no influence or assignment of roles by National petroleum thus no DAPE could be read into. Sub-contractor activities cannot be superimposed to read a project PE or a DAPE.

-- "Long interruptions" in project also to be excluded to determine project PEs tenure. Long interruption is to be interpreted on facts. PE means a certain permanency, thus interim interruptions cannot form part of the tenure of a project PE.

-- Assessee filed a return citing themselves as a PE retracted later on at the time of assessment -- PE existence is to be on facts no promissory estoppel to operate on the same.

-- FEMA regulations requiring one to open project office and the tenure of this may not be an indicator to the actual tenure of project PE's existence again to be inferred on facts.

-- Meaning of PE was read from Philip Baker's commentary as "permanent" is relative and not synonymous with "everlasting"; it was used only in "contradistinction to something fleeting, transitory, temporary or casual" from AAR In Re. P. No. 24 of 1996 : (1999) 237 ITR 798 (AAR).

-- As to why preparatory and ancillary activities cannot constitute a PE quoted from Klaus Vogel - "It is recognised that such a place of business may well contribute to the productivity of the enterprise, but the services it performs are so remote from the actual realisation of profits that it is difficult to allocate any profit to the fixed place of business in question. Examples 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".

-- How to reckon the tenure of a project PE also quoted from Klaus Vogel -- the minimum period begins when the enterprise starts to perform business activities on the spot in connection with a building site or construction or assembly project. The term 'on the spot' should, in these instances, not necessarily be taken to denote the actual place where the building works, etc., are to be accomplished, for instance.

-- In cases where a planning office for the construction work is installed at some other place. In such an event, preparatory and ancillary work is already connected with the building works proper, provided the former directly serve the operation of the building site (likewise OstBMF 3 SWI 19 (1993): DTC Austria; USSR). Providing for such an early beginning of the minimum period is the best way of taking the technical and economic nature of building works into account and it also avoids the practical difficulties of having to draw the line between ancillary activities and 'building works proper'....

-- Assessee will be assessed under section 44BB on presumptive basis with no deductions on the services rendered onshore as this income arose in India. Offshore delivery of material to not to form part of assessable income in India.