By Geeta Jani / Dhishat B. Mehta
Chartered Accountants
12.
TS-633-ITAT-2018 (Delhi) GIL Mauritius Holdings Ltd. vs. DDIT Date of Order: 22nd
October, 2018 A.Y.: 2006-07
Article 5(1)
& 5(2)(g) of India-Mauritius DTAA; – Ownership over oil or gas well is not
a precondition for constitution of exploration PE under Article 5(2)(g) of
India- Mauritius DTAA.
Facts
The Taxpayer
was a company incorporated in Mauritius. During the year under consideration,
Taxpayer entered into a subcontracting arrangement for rendering certain
services in relation to oil and gas project in India under two separate
contracts with two Indian companies (ICo 1 and ICo 2). For executing the work
under the respective contracts, Taxpayer was required to establish a dedicated
project team headed by a project manager for proper execution of the subcontracted
work in India. It had also deployed certain vessels in India.
While the two
contracts were entered into on 1st November 2004 and 15th
September 2004 respectively, the Taxpayer considered the date of entry of
vessel in India (viz. 1st February 2005 and 1st December
2004 respectively) as the date of commencement of the contract and contended
that the duration of the two contracts was 109 days and 136 days respectively.
Hence, presence of such duration did not result in a PE in India.
The AO however,
held that the vessel used by the taxpayer for carrying on its activities in
India constituted a fixed place of business under Article 5(1) of the DTAA.
Hence, income from subcontracting was taxable in India.
Aggrieved, the
Taxpayer filed an appeal before the CIT(A) who noted that Taxpayer activities
were in relation to a project dealing with transportation of mineral oils, and
hence, such activities would create a PE under Article 5(1) as also under
Article 5(2)(g)2 of the DTAA. (Both Article 5(1) and 5(2)(g) do not
provide for a time threshold for creation of a PE). Aggrieved, the Taxpayer
appealed before the Tribunal.
Held
Computation of
duration of the contract:
- As
per the subcontracting agreement, subcontractor was required to commence the
work on the ‘effective date’ or such other date as may be mutually agreed
between the parties. On failure of Taxpayer to furnish information about
the effective date, the date of entering into the contract was held to be
the date of commencement of the contract.
- Further,
it was held that the date of entry of the vessel into India cannot be
taken to be date of commencement of the work for the following reasons:
• The scope of work under the
main contract when coupled with the scope of work under the sub-contract did
not support the commencement of work necessarily from the date of entry of
vessel into India.
• The terms of subcontractor
agreement required not only the vessels to be mobilised in India but also
mobilisation of several key persons, equipment materials tools etc. Also, the
contract stated that the commencement of contract shall be from the date the
agreement is signed.
• The date of demobilisation of
the vessel was taken as the end date of the contract. Thus, duration of both
contracts was calculated as 201 days and 212 days respectively after taking
into account period from the date of signing the contract till the date of
demobilisation of the vessel in India.
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2 Article
5(2)(g) deems a mine, an oil or gas well, a quarry or any other place of
extraction of natural resources as a fixed place PE
Applicability
of Article 5(2)(i)
• Since the duration of both the
separate contracts was less than the threshold period of 9 months Taxpayer did
not create a PE under Article 5(2)(i) of the DTAA.
Applicability
of Article 5(2)(g)
- For
determination of an exploration PE under Article 5(2)(g) of
India-Mauritius DTAA, the only requirement is that there should be a fixed
place in the form of oil rig/ gas well/quarry at the disposal of the
Taxpayer through which it carries on its business. It is incorrect to say
that the Taxpayer should be owner of the oil or gas well for evaluating if
it has a PE under Article 5(2)(g).
- Article
5(2) (including Article 5(2)(g) refers to various places which could be
included within the scope of PE, without attaching any condition that they
should be owned by the taxpayer. The only condition is that the business
of the taxpayer should be carried on through that place.
- Since
nothing was brought on record to show that the project site was at the
disposal of the Taxpayer, and whether its business was carried on from
such project site, it cannot be held that Taxpayer had a PE under Article
5(2)(g) of the DTAA.
