Equipment was placed and personnel were stationed on the vessel of the main contractor for carrying out grouting work. The ITAT held that the vessel was a fixed place of business through which the assessee carried on business
Facts:
The Assessee is a company incorporated in UAE. The Assessee is carrying on grouting services in which a layer of cement is laid on underwater structure. For year under consideration, the assessee undertook contracts for various parties. For rendering the services, vessels are provided by contractors and equipment along with personnel are provided by assessee. The Assessee also made some supplies from outside India to Indian companies. The income arising from these activities were claimed as non-taxable in India.
The AO held that service as taxable service as per Article 5(1) of India-UAE DTAA and taxed it @25%. The DRP upheld the order of AO but directed the AO to reduce attribution to profits to @ 10% of gross receipts. Aggrieved, the Assessee preferred an Appeal before the ITAT.
Decision:
Before the Tribunal, the assessee submitted that as per Article 5(2)(h) of the India-UAE DTAA, its activities constituted a ‘construction PE’. Therefore, in order to constitute a construction PE, each construction or assembly project should have continued for a period of more than nine months in India. The Assessee submitted that since none of the projects had continued for more than nine months, the assessee could not be said to have a construction PE in India in terms of Article 5(2)(h).
The ITAT observed that for the purpose of Article 5(2)(h) of the India- UAE DTAA, sub-sea activities that can be treated as ‘construction’ are “laying of pipe-lines and excavating and dredging”. The ITAT held that grouting activities carried on by the assessee being pipelines and cable crossing, pipeline and cable stabilisation, pipeline cable protection, stabilisation and protection of various sub-sea structures, anti-scour protection, etc., cannot be held to be ‘construction’ under Article 5(2)(h) of the India-UAE DTAA.
The Tribunal held that the assessee had a fixed place PE in India in the form of the vessel on which equipment was placed and personnel were stationed. The ITAT observed that for carrying out the grouting activity, equipment was the main place of business for the assessee and equipment was placed and personnel were stationed on the vessel of the main contractor. Further, in terms of the contracts, the assessee was required to ensure that whenever required by the main contractor, personnel and equipment will come to India, and, after completion of work, were sent out of India until required by the main contractor again. Thus, the equipment and personnel were demobilised after the work was completed. The ITAT concluded that the assessee had a fair amount of permanence through its personnel and equipments, within the territorial limits of India, to perform its business activity. The ITAT concluded that the vessel on which equipment was placed and personnel were stationed, was the fixed place of business through which business was carried on by the assessee. Accordingly, criteria under Article 5(1) were satisfied and income was taxable in India.