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The Tax Publishers ADIT & Ors. v. J. Ray Mc Dermott Eastern Hemisphere Ltd. & Ors. [ITA Nos. 4028, 4434 /Mum/2002, ITA No. 5302/Mum/2004, dt. 6-5-2016] : 2016 TaxPub(DT) 2236 (Mum-Trib) Explained: Project PE duration how reckoned Place PE arising out of survey operation Conflict of different PE clauses how read Insurance claim whether connected with exploration to fall in scope of section 44BB Proportionate income to be attributed under section 44BB for offshore operation due to section 5 and 9(1) *Facts:* Appeal pertains to a number of assessment years. Assessee a non-resident based out of Mauritius was in the oil rig erection, commission and in oil exploration support business. They had rendered project activity for Enron project. The assessing officer took a stand that in computing the duration no. of days to read a project PE, the multiple locations should be taken into account and all the projects should be aggregated. On appeal: Arising out of survey in the liaison office (LO) of one of the assessees group companies documents were seized and employees were questioned and recorded, which made assessing officer infer that the LO itself was a PE for the assessees project operations. This was upheld by Commissioner (Appeals). While reading PE the assessing officer/Commissioner (Appeals) read that if place PE was not satisfied then service PE test should be applied thus either or of the clauses of PE needs to be read. On further appeal: Assessee was in receipt at offshore of an insurance claim arising out of rejection of a project supply. Question arose whether this will fall in the scope of section 44BB presumptive provision as in connection with exploration. The plea was the claim arose and was received outside of India thus will not fit into Indian tax ambit under section 44BB was the stand taken by the assessee. On appeal: There were offshore supplied done by the assessee and some servicing as well. Question arose whether the offshore service part will also need to be applied in computing section 44BB provisions: Held in favour of the assessee: While calculating the duration for PE test, aggregation the duration or non-aggregation needs to be seen from the phraseology of DTAA. In Mauritius DTAA it was used in singular thus cannot be aggregated. Even while aggregating common days will need to be excluded if thus on the DTAA to avoid ridiculous result like overall 500 days in a year due to overlap of days. The documents collected or statements recorded from the LO only go to show that the activities were preparatory and auxiliary activities, thus cannot be sufficient to trigger a PE. The reading of PE is to be seen from the fact of the activity, here since a project PE is in discussion first project PE needs to be seen, if this is not there, there is no need to telescope the rest of the PE clauses as the prime activity to trigger PE itself did not fall in the scope. In short the relevance of activity will decide the PE clause. The receipt of insurance claim offshore arose from Indian project, being miscellaneous income does not normally fall into the scope of section 44BB unless inextricably linked with the project or exploration work but since facts being not sufficient is remanded to examine, if it arose from the said project with/without a PE and how expenses in relation to the claim were dealt with etc. to decide accordingly. If it arose in nexus with a PE, then since being miscellaneous income it may not fall in the scope of section 44BB, but can get taxed in India. If there is no PE it may still not fall in the scope of section 44BB and thus may not be taxable in India or alternatively read with section 5/9(1) with part income relating to India. Offshore supply, service, if nexus is inextricably linked with the project, then going by scope of section 5 and 9(1) explanation only portion which arose/accrue can fall in the scope of section 44BB. In short section 44BB cannot super scribe what is not taxable under section 5/9(1) in its ambit. Remanded to arrive at facts.

The Tax Publishers

ADIT & Ors. v. J. Ray Mc Dermott Eastern Hemisphere Ltd. & Ors. [ITA Nos. 4028, 4434 /Mum/2002, ITA No. 5302/Mum/2004, dt. 6-5-2016] : 2016 TaxPub(DT) 2236 (Mum-Trib)

Explained:

Project PE duration how reckoned

Place PE arising out of survey operation

Conflict of different PE clauses how read

Insurance claim whether connected with exploration to fall in scope of section 44BB

Proportionate income to be attributed under section 44BB for offshore operation due to section 5 and 9(1)

Facts:

Appeal pertains to a number of assessment years. Assessee a non-resident based out of Mauritius was in the oil rig erection, commission and in oil exploration support business. They had rendered project activity for Enron project. The assessing officer took a stand that in computing the duration no. of days to read a project PE, the multiple locations should be taken into account and all the projects should be aggregated. On appeal:

Arising out of survey in the liaison office (LO) of one of the assessees group companies documents were seized and employees were questioned and recorded, which made assessing officer infer that the LO itself was a PE for the assessees project operations. This was upheld by Commissioner (Appeals). While reading PE the assessing officer/Commissioner (Appeals) read that if place PE was not satisfied then service PE test should be applied thus either or of the clauses of PE needs to be read. On further appeal:

Assessee was in receipt at offshore of an insurance claim arising out of rejection of a project supply. Question arose whether this will fall in the scope of section 44BB presumptive provision as in connection with exploration. The plea was the claim arose and was received outside of India thus will not fit into Indian tax ambit under section 44BB was the stand taken by the assessee. On appeal:

There were offshore supplied done by the assessee and some servicing as well. Question arose whether the offshore service part will also need to be applied in computing section 44BB provisions:

Held in favour of the assessee:

While calculating the duration for PE test, aggregation the duration or non-aggregation needs to be seen from the phraseology of DTAA. In Mauritius DTAA it was used in singular thus cannot be aggregated. Even while aggregating common days will need to be excluded if thus on the DTAA to avoid ridiculous result like overall 500 days in a year due to overlap of days.

The documents collected or statements recorded from the LO only go to show that the activities were preparatory and auxiliary activities, thus cannot be sufficient to trigger a PE.

The reading of PE is to be seen from the fact of the activity, here since a project PE is in discussion first project PE needs to be seen, if this is not there, there is no need to telescope the rest of the PE clauses as the prime activity to trigger PE itself did not fall in the scope. In short the relevance of activity will decide the PE clause.

The receipt of insurance claim offshore arose from Indian project, being miscellaneous income does not normally fall into the scope of section 44BB unless inextricably linked with the project or exploration work but since facts being not sufficient is remanded to examine, if it arose from the said project with/without a PE and how expenses in relation to the claim were dealt with etc. to decide accordingly. If it arose in nexus with a PE, then since being miscellaneous income it may not fall in the scope of section 44BB, but can get taxed in India. If there is no PE it may still not fall in the scope of section 44BB and thus may not be taxable in India or alternatively read with section 5/9(1) with part income relating to India.

Offshore supply, service, if nexus is inextricably linked with the project, then going by scope of section 5 and 9(1) explanation only portion which arose/accrue can fall in the scope of section 44BB. In short section 44BB cannot super scribe what is not taxable under section 5/9(1) in its ambit. Remanded to arrive at facts.