The Chartered Accountant

TAXATION
dia - Held, no - Whether it would be wrong to equate
permanent establishment with a business connection,
since former is for purpose of assessment of income
of a non-resident under a Double Taxation Avoidance
Agreement, and latter is for application of section
9 - Held, yes - Whether income arising out of
turnkey project executed in India would be assessable
in India, only because a non-resident has a permanent
establishment - Held, no - Whether for attracting taxing
statute, there has to be some activity through permanent
establishment and, if income arises without
any activity of permanent establishment, even under
DTAA, taxation liability in respect of overseas services
would not arise in India - Held, yes - Whether in
cases where different severable parts of a composite
contract are performed at different places, principle
of apportionment as recognised by Explanation 1(a)
of section 9(1)(i), can be applied, to determine which
fiscal jurisdiction can tax that particular part of transaction
- Held, yes - Whether location of source of
income within India would render sufficient nexus to
tax income from that source - Held, no - Whether for
section 9(1)(vii) to be applicable, it is necessary that
services provided by a non-resident assessee under a
contract should not only be utilized within India, but
should also be rendered in India or should have such
a live link with India that entire income from fees as
envisaged in article 12 of DTAA becomes taxable in
India - Held, yes - Whether thus, for a non-resident to
be taxed on income for services, such a service needs
to be rendered within India, and has to be a part of
a business or profession carried on by such person in
India - Held, yes - Whether whatever is payable by a
resident to a non-resident by way of fees for technical
services would not always come within purview of
section 9(1)(vii) but it must have sufficient territorial
nexus with India so as to furnish a basis for imposition
of tax - Held, yes - Appellant was a company
incorporated in Japan and engaged, inter alia, in business
of construction of storage tanks as also engineering,
etc. - It entered into an agreement with ‘P’
for setting up a Liquefied Natural Gas receiving storage
and degasification facility in India - Appellant was
to develop, design, engineer and procure equipment,
materials and supplies, to erect and construct storage
tanks of 5 MMTPA capacity - Contract involved offshore
supply and offshore services - Whether since all
activities in connection with offshore supply were carried
out outside India, amounts received/receivable by
appellant from ‘P’ for offshore supply of equipments,
materials, etc., cannot be deemed to accrue or arise
in India - Held, yes - Whether since entire services
had been rendered outside India and had nothing to
do with permanent establishment, amount received/
receivable by appellant from ‘P’ for offshore services
was not liable to tax in India - Held, yes
facts
The appellant is a company incorporated in Japan and
is engaged, inter alia, in the business of construction
of storage tanks as also engineering, etc. It formed
a consortium along with various foreign entities including
an Indian company. With the said consortium
members, it entered into an agreement with ‘P’ for setting
up a Liquefied Natural Gas (LNG) receiving storage
and degasification facility in India. The contract
envisaged a turnkey project. Role and responsibility
of each member of the consortium was specified separately.
Each of the members of the consortium was
also to receive separate payments. The appellant was
to develop, design, engineer and procure equipment,
materials and supplies, to erect and construct some
storage tanks of 5 MMTPA capacities.
The contract indisputably involved:
(i) Offshore supply,
(ii) Offshore services,
(iii) Onshore supply,
(iv) Onshore services and
(v) construction and erection.
The price was payable for offshore supply and offshore
services in US dollars, and for onshore supply
as also onshore services and construction and erection
partly in US dollars and partly in Indian rupees.
Liability to pay income-tax in India of the appellant,
being doubtful, an application was filed by the appellant
before the Authority for Advance Rulings in
terms of section 241Q (1) raising the following questions
:
1. Whether the amounts, received/receivable by
the appellant from ‘P’ for offshore supply of
equipments, materials, etc., are liable to tax
in India under the provisions of the Act and
India-Japan Tax Treaty and if taxable, to what
extent are the amounts reasonably attributable
to the operations carried out in India and accordingly
taxable in India ?
2. Whether the amounts received/receivable by
the appellant from ‘P’ for offshore services
are chargeable to tax in India under the Act
and/or the India-Japan Tax Treaty and if tax-
THE CHARTERED ACCOUNTANT 989 DECEMBER 2008