RULINGS
Application No. P-11 of 1995
Decided On: 09.02.1996
Appellants: In Re: Advance Ruling A. No. P-11 of 1995
Vs.
Respondent:
Hon’ble Judges:
S. Ranganathan, J. (Chairman), D.B. Lal and R.L. Meena, Members
Subject: Direct Taxation
Acts/Rules/Orders:
Income Tax Act, 1961
RULING
1. This application seeks the ruling of this Authority as per the provisions of Chapter XIX-B of the Income-tax Act, 1961, on certain questions which arise out of certain transactions entered into by the applicant in India. The applicant is a company duly incorporated and existing under the laws of Singapore. Accordingly, it is a resident of Singapore.
2. The facts having a bearing on the question on which ruling has been sought, as stated by the applicant, and as brought out from the other relevant records, are as follows :
(a) During the previous year ending on March 31, 1995, the applicant entered into the following two contracts with ABC for providing services related to burial of pipelines off-shore India.
(i) X pipeline project ; and
(ii) Y trunk pipeline project.
The scope of work in these contracts included burial of pipelines both onshore and offshore India and involved the following activities :
* mobilisation and demobilisation ;
* pre-trenching survey ;
* installation of pipeline crossing, pipe supports and free span rectification works ;
* subsea welding ;
* installation of submarine cables ;
* pipeline rigging, testing and drying.
(b) The job executed by the applicant was in the nature of a turnkey sub-contract because the main contract from the Oil and Natural Gas Commission was obtained by XYZ. This contract, inter alia, envisaged installation of pipeline crossing, free span rectification works, subsea welding, submarine cables, testing, drying, etc. Part of the job was subcontracted to the ABC by the XYZ. The ABC in turn further sub-contracted the job of burial of pipeline to the applicant. The contracts of the applicant being in the nature of turnkey sub-contracts, all marine vessels, personnel and equipment were provided by the applicant.
(c) The duration of the two contracts was 7 days and 39 days respectively.
(d) The fact that the activities under the contract were performed in Indian territory is undisputed. Therefore, in the normal course the income from such activities would have been assessable to income-tax in India.
3. However, it has been contended by the applicant that the specific provisions of the “Agreement for Avoidance of Double Taxation and Prevention of Fiscal evasion with respect to taxes on income” concluded between the Government of the Republic of India and Republic of Singapore (Agreement for Avoidance of Double Taxation) which came into force on May 27, 1994, should overrule the general provisions of the Indian Income-tax Act, 1961. It has further been contended that as per the provisions of the Agreement for Avoidance of Double Taxation, the applicant does not have a permanent establishment (P. E.), in India and, therefore, it cannot be subjected to income-tax on the profits earned from these operations. Accordingly, the following question has been raised before the Authority :
” The taxability [in terms of Article 5 of the Agreement for Avoidance of Double Taxation concluded between India and Singapore on January 20, 1994] of revenues earned by the applicant, a tax resident of Singapore, from the contracts entered into with ABC during the previous year ended on March 31, 1995.”
4. Since any answers to the questions raised by the applicant will involve consideration of the relevant articles of the Agreement for Avoidance of Double Taxation, they may be set out in so far as they are relevant.
(See [1994] 209 ITR (St.) 1, 4, 8).
“Article 5
(1) For the purposes of this Agreement, the term ‘permanent establishment’ means a fixed place of business through which the business of the enterprise is wholly or partly carried on.
(2) the term ‘permanent establishment’ includes especially :
(a) a place of management ;
(b) a branch ;
(c) an office ;
(d) a factory ;
(e) a workshop ;
(f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources ;
(g) a warehouse in relation to a person providing storage facilities for others ;
(h) a farm, plantation or other place where agriculture, forestry, plantation or related activities are carried on ;
(i) premises used as a sales outlet or for soliciting and receiving orders ;
(j) an installation or structure used for the exploration or exploitation of natural resources but only if so used for a period of more than 120 days in any fiscal year ;
(3) A building site or construction, installation or assembly project constitutes a permanent establishment only if it continues for a period of more than 183 days in any fiscal year.”
“Article 7
(1) The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is directly or indirectly attributable to that permanent establishment.”
5. The Authority has no hesitation in accepting the contention of the applicant that the specific provisions of the Agreement for Avoidance of Double Taxation should override the general provisions of the Income-tax Act, 1961, because by now it is a settled law. The Department also has not raised any objection against this contention of the applicant. Therefore, it is to be considered whether the income of the applicant earned from the contracts mentioned earlier is taxable or not as per the provisions of the Agreement for Avoidance of Double Taxation. For this purpose it has first to be decided as to whether the applicant had a permanent establishment in India as per the provisions of Article 5 of the Agreement for Avoidance of Double Taxation or not. Since the applicant was only engaged in the burial of pipelines, therefore, it cannot be said that there was any fixed place through which its business was carried on. Thus, the applicant can be said to have a permanent establishment in India only if the nature of its activities in the Bombay High can be brought within the scope of Clause (f) or (j) of para 2 or para 3 of Article 5 of the Agreement for Avoidance of Double Taxation. It was argued on behalf of the applicant that the burial of the pipelines in the seabed amounted to installation as per the requirement of para 3 of Article 5 of the Agreement for Avoidance of Double Taxation. On the other hand, the Additional Commissioner of Income-tax who appeared on behalf of the Commissioner of Income-tax, stressed that the activities of the applicant are covered within the scope of Clause (f) of para 2 of Article 5 of the Agreement for Avoidance of Double Taxation. He maintained that the installation work was in fact carried out by the ABC and the applicant was awarded only a part of the work by the ABC and, therefore, it cannot be said that the applicant has carried out any installation work in the Bombay High. According to him as oil and gas-well has specifically been covered by the Agreement for Avoidance of Double Taxation in Clause (f) of para 2 of Article 5, it cannot be covered under any other Clause of the Agreement for Avoidance of Double Taxation. This argument of the Department cannot be accepted
because the applicant has only worked on the oil or gas-well and the oil well in question was not owned or operated by the applicant.
6. From a perusal of the scope of the work carried on by the applicant, it is clear that the applicant was engaged in an installation and assembly project which pertained to the burial of pipelines in the seabed. Such activities are covered by para. 3 of the Article 5 of the Agreement for Avoidance of Double Taxation and not by Clause (f) of para 2 of Article 5 as claimed by the Department. But para. 3 permits such project to be treated as a permanent establishment only if the duration of the project exceeds 183 days in any fiscal year, which is not the case here. It, therefore, follows that the applicant has no permanent establishment in India within the meaning of Article 5 of the Agreement for Avoidance of Double Taxation and since Article 7 of the Agreement for Avoidance of Double Taxation permits the taxation, in the hands of a resident of Singapore, only of the profits attributable to a permanent establishment in India, no part of the profits earned by the applicant from its activities under the contract can be charged to Indian income-tax even though such activities took place within Indian territory and the profits therefrom would have been chargeable to tax in India but for the Agreement for Avoidance of Double Taxation.
7. For the reasons discussed above, the Authority pronounces the following ruling on the question raised in Application No. P-11 of 1995.
RULING
8. The revenues earned by the applicant from the contracts entered into with ABC, Singapore, during the previous year ended on March 31, 1995, would not be liable to tax in India, as it had no permanent establishment in India.