October 2018

1 Article 5(2)(g) of India-Cyprus DTAA auxiliary and preparatory activity undertaken prior to awarding of the contract cannot be reckoned for computing threshold for existence of PE.

Geeta Jani , Dhishat B. Mehta, Chartered Accountants

TS-426-ITAT-2018

Bellsea Ltd vs. ADIT

A.Y: 2008-09, Date of Order: 6th July, 2018

 

Article 5(2)(g) of India-Cyprus DTAA auxiliary and preparatory activity undertaken prior to awarding of the contract cannot be reckoned for computing threshold for existence of PE.

 

Facts

The Taxpayer was a company incorporated in Cyprus mainly engaged in the business of dredging and pipeline related services for oil and gas installations. During the year under consideration, Taxpayer was awarded a contract by another foreign entity (FCo) for placement of rock in seabed for protection of gas pipelines and umbilical1 of subsea structures in oil and gas field developed in India.

 

On the basis that construction work had started on 4th January 2008 as per the contractual terms, and was completed on 30th September 2008 (i.e the date of issuance of completion certificate as per the contract), the taxpayer contended that it did not have any PE in India. Accordingly, it did not meet the 12-month threshold for creation of installation PE under Article 5(2)(g) of India- Cyprus DTAA.

 

However, the AO contended that 12-month threshold should be computed from September 2007, when one of the employees of the Taxpayer visited India for the purpose of collecting information, until November 2008 (as the formalities of final completion certificate had extended upto November 2008, even though the date mentioned in the completion certificate is 30th September 2008). According to the AO, the presence was for a project which lasted for more than 12 months and triggered Installation PE.

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