By Geeta Jani | Dhishat B. Mehta
Chartered Accountants
19.
TS-741-ITAT-2018 (Del) ULO Systems LLC vs. ADIT Date of Order: 29th December,
2018 A.Y.: 2007-08
Article 5(2)(h) of India-UAE DTAA –
Grouting activity undertaken in India by UAE Company for a period of 9 months
does not result in construction PE under India-UAE DTAA
FACTS
Taxpayer, a UAE company, was engaged in
providing grouting and precast solutions to support and protect subsea
pipelines, cables and structures. As part of grouting activity, a neat mixture
of cement and water (grout) is mixed and pumped into water in certain shapes
and forms, which acts as a support and stabilises the subsea pipelines and
cables. It also helps in preventing the corrosion of the pipelines.
During the year
under consideration, Taxpayer undertook several projects in India for which it
was present in India for an aggregate period of 264 days. Further, presence for
any single project did not exceed the threshold specified in India-UAE DTAA.
Also, the projects were unconnected and were performed for unrelated
third-party customers in India.
Taxpayer believed that the grouting activity
carried out in India was in the nature of construction activity as contemplated
in Article 5(2)(h) of India-UAE DTAA, and as the presence in India did not
exceed 9 months, it did not create its Permanent Establishment (“PE”) in India.
Further, since the contracts were not inter-connected, time spent on such
projects could not be aggregated for calculating the 9-month threshold.
The AO, however, held that that the grouting
activity would create a fixed place PE under Article 5(1) of the DTAA. AO also
alleged that Taxpayer circumvented the 9-month threshold by manipulating the
number of days of presence in India.
Aggrieved, the Taxpayer approached the
Dispute Resolution Panel (DRP) which confirmed AO’s order.
Aggrieved, the Taxpayer appealed before the
Tribunal.
HELD
- It is a settled legal
principle that a specific provision would override a general provision. Thus,
Article 5(1) could not be applied where activities are covered under the
specific construction PE article [Article 5(2)(h)] of the DTAA.
- Article 5(2)(h) does not
differentiate between a simple/complex construction work. Thus, the fact that
grouting activity is not a simple masonry work and involves complex aspects is
not relevant for determining whether it is covered by construction PE article.
- Evaluation of whether there
exists a PE needs to be made on a year to year basis.
- While construction PE clause
of some treaties (like India-Australia and India-Thailand) are worded in a
manner to specifically aggregate the time spent on multiple projects, Article
5(2)(h) of India-UAE DTAA is worded differently and uses singular expressions ‘a
building, site or construction or assembly project’. Thus, time spent on
multiple projects in India cannot be aggregated for calculating the threshold
period under India-UAE DTAA.
- Since the Taxpayer’s
presence in India in the relevant year for carrying on each of the grouting
project was less than 9 months, there was no construction PE of the Taxpayer
was constituted in India.
