8.
[2017] 86 taxmann.com 77 (Delhi – Trib.)
Maersk A/s vs. ACIT
A.Ys.: 1998-99 to 2003-04
Date of Order: 08th June,
2017
FACTS
The Taxpayer was a company
incorporated in Denmark. It qualified for benefits under India-Denmark DTAA. It
was in the business of providing charter hire services for ‘Anchor Handling Tug
cum Supply Ship’ (“the vessel”). The Taxpayer owned the vessel and had procured
the master and the crew from its group company. During the relevant assessment
year, the Taxpayer entered into agreement with an Indian company (“ICo”) for
charter hire of the vessel for exploration and exploitation of oil and natural
gas in Indian off-shore area. In its return of income, the Taxpayer disclosed
‘nil’ taxable income on the ground that no part of the receipts from ICo were
taxable in India since it did not have any Permanent Establishment (“PE”) in
India in terms of Article 5 of India- Denmark DTAA.
During the course of the
assessment proceedings, the Taxpayer submitted that:
– it did not have any fixed place in the form
of ‘place of management’, branch, office, factory, workshop, etc.;
– it did not have any installation or structure
used for the exploration and exploitation of the natural resources since the
vessel could not be said to be an installation or structure;
– in terms of any of the clauses (a) to (j) of
paragraph 2 of Article 5 of India- Denmark DTAA, it did not have any PE in
India.
Hence, no income could be
taxed in India in terms of Article 7.
According to the Assessing
Officer (“AO”), the commentary on ‘UN model’ mentions that a ‘place of
management’ may also exist where no premises is available or required for
carrying on business and it is sufficient if the enterprise has certain amount
of space at its disposal and it uses such space to carry out its business
wholly or partly through it, which the Taxpayer had done from the vessel. He
further referred to commentary by Phillip Baker, which mentions that where
enterprise lets out or leases facilities, equipment, and tangible properties
and also supplies the personnel to operate the equipment with wider
responsibilities, then the activities of such enterprise constitute a PE.
Accordingly, he held that the vessel of the Taxpayer, being a ‘place of
management’, constituted a PE under Article 5(2)(a) of Indo-Denmark DTAA and
therefore, receipts of the Taxpayer from ICo were taxable in India.
HELD
– Perusal of the agreement showed that the
arrangement was for hire of vessel for exploitation and exploration of oil and
natural gas by ICo. Not only the vessel but also the master and the crew were
under the direction and control of ICo. In another decision in case of the
Taxpayer, the High Court had accepted that the master and the crew were not the
employees of the Taxpayer, but were procured from a group company.
– When the personnel manning the vessel were
not the employees of the Taxpayer; and nor were they within the direction and
control of the Taxpayer, it cannot be said that these personnel constituted a
PE in terms of either ‘Service PE’ or that the Taxpayer was rendering its
activities through its employees in India for a period of 183 days or more.
– The revenue had contended that the vessel was
a “place of management” in terms of Article 5(2)(a) of India- Denmark
DTAA. However, it cannot be disputed that the management of the Taxpayer is in
Denmark where the decisions relating to the business are taken. The concept of
control and management of the business alludes to a concept of a place where
controlling and directive power (i.e., the head and brains) of the enterprise
is situated and where the decisions are taken. The AO and the CIT(A) have
misinterpreted the UN commentary. In his commentary, Arvid A. Skaar has
emphasised that the place must have power to make significant decisions.
– To conclude, the following three aspects need
to be considered. Firstly, the hiring of the vessel by ICo does not make
the vessel a place of management for the Taxpayer in India; secondly, as
accepted by the High Court in the Taxpayer’s own case, the crew and the master
of the vessel were not the employees of the Taxpayer; and lastly, in any
case master and crew did not have power to make significant decisions for the
Taxpayer because they were under control and direction of ICo.
– The vessel of the Taxpayer cannot be reckoned as installation or structure used for exploration and exploitation of natural resources as such activity was being done by ICo. ICo had merely hired the vessel from the Taxpayer. Therefore, even under this clause it could not be held that the vessel of the Taxpayer constituted a PE in India.
– Thus, no PE of the Taxpayer in India was
constituted. Hence, payments received from ICo could not be taxed in India in
terms of Article 7 of DTAA.
