Calcutta High Court
& Tp) vs M/S. Van Oord Atlanta B.V on 14 March, 2023
OD-3
ITA/121/2019
IN THE HIGH COURT AT CALCUTTA
SPECIAL JURISDICTION (INCOME TAX)
ORIGINAL SIDE
COMMISSIONER OF INCOME TAX (IT
& TP), KOLKATA
-Versus-
M/S. VAN OORD ATLANTA B.V.
BEFORE :
THE HON'BLE JUSTICE T.S. SIVAGNANAM
And
THE HON'BLE JUSTICE HIRANMAY BHATTACHARYYA
Date : 14th March, 2023
Appearance :
Mr. Smarajit Roychowdhury, Adv.
...for the appellant
Mr. J. P. Khaitan, Sr. Adv.
Ms. Swapna Das, Adv.
Ms. Sanjukta Gupta, Adv.
...for the respondent.
The Court : This appeal filed by the revenue under
Section 260A of the Income Tax Act, 1961 (the 'Act' for
brevity) is directed against the order dated 20th November,
2018 passed by the Income Tax Appellate Tribunal, "C" Bench,
Kolkata (the Tribunal) in ITA No.1063/Kol/2009 for the
assessment year 2003-04.
The appeal was admitted on 2nd September, 2019 on the
following substantial question of law:
(i) Whether on the facts and in the circumstances
of the case the learned Tribunal erred in
holding that there was no Permanent
Establishment (PE) of the assessee in India
and the recovery of bad debts written off in
earlier years was not taxable in India ?
We have heard Mr. Smarajit Roychowdhruy, learned
standing counsel for the appellant/revenue and Mr. J. P.
Khaitan, learned senior counsel assisted by Ms. Swapna Das and
Ms. Sanjukta Gupta, learned Advocates for the
respondent/assessee.
The above referred substantial question of law was
considered by this Court in ITA/254/2008 and by judgment dated
7th February, 2023 the appeal filed by the revenue was
dismissed. The operative portion of the judgement reads as
follows:
" * * * * * * * * *
The only question which arises for
consideration in this appeal is whether the project
office of the respondent/assessee which functioned
for a period of about 153 days could be construed as
a `permanent establishment' and whether the
respondent/assessee could be subjected to proceedings
under the Income Tax Act, 1961. The Assessing
Officer was of the view that the selling of the
dredger which was brought from Netherlands to the
waterways outside West Bengal did not necessarily
mean the closure of the project office in India.
Further, the approval of the Reserve Bank of India is
mandatory for closure of the project office and the
bank accounts reveal that the project office was
operating till 31st March, 2000. The said order was
affirmed by the Commissioner of Income Tax (Appeals).
Challenging the same the assessee filed appeal before
the Tribunal.
The nature of transaction which was the subject
matter of appeal would be covered by the agreement
for avoidance for double taxation and prevention of
physical evasion with Netherlands. Article 5 of the
said agreement deals with `permanent establishment'.
Paragraph 2 of Article 5 defines the term `permanent
establishment. Paragraph 3 of Article 5 states that
a complete site or construction, installation or
assembly project constitutes a permanent
establishment only where such site or project
continues for a period of more than six months.
Paragraph 4 of Article 5 commences with a non
obstante clause stating that notwithstanding the
preceding provisions of Article 5 the term `permanent
establishment' shall be deemed not to include and
there are six clauses in paragraph 4 of which clause
(e) would be relevant for case on hand, which states
that maintenance of fixed place of business solely
for the purpose of advertising, for the supply of
information, for scientific research or for other
activities which had preparatory or auxiliary
character for the enterprise would not fall within
the definition of a permanent establishment. Taking
note of Article 5 of the agreement with Netherlands,
the learned Tribunal examined the facts of the case
and found that the activities of the project office
of the respondent/assessee in West Bengal was
auxiliary in character. The project office was in
operation from 26th February, 1999 to 29th July, 1999,
that is, for a period of 153 days only, which the
Tribunal found, was much less than the period of six
months, as stipulated in Article 5(3).
Therefore, the learned Tribunal held that there
was no valid reason for treating the project office
of the assessee as a permanent establishment. The
view taken by the learned Tribunal cannot be faulted,
more so, because of the recent decision of the
Hon'ble Supreme Court in the case of Director of
Income Tax-II (International Taxation) New Delhi &
Anr. vs. Samsung Heavy Industries Company Limited,
(2020) 7 SCC 347 = (2020) 426 ITR 1. In the said
case, the question which arose for consideration
before the Hon'ble Supreme Court as to the taxability
of the income attributable to a permanent
establishment set u p in a fixed place in India
arising from the agreement for avoidance for double
taxation of income and prevention of physical evasion
with the republic of Korea. The language in the said
agreement is in pari meteria with the agreement with
Netherlands.
The Hon'ble Supreme Court after referring to
various decisions in paragraph 26 held as follows :-
"26. A reading of the aforesaid judgments
makes it clear that when it comes to "fixed place"
permanent establishments under double taxation
avoidance treaties, the condition precedent for
applicability of Article 5(1) of the double taxation
treaty and the ascertainment of a "permanent
establishment" is that it should be an establishment
"through which the business of an enterprise" is
wholly or partly carried on. Further, the profits of
the foreign enterprise are taxable only where the
said enterprise carries on its core business through
a permanent establishment. What is equally clear is
that the maintenance of a fixed place of business
which is of a preparatory or auxiliary character in
the trade or business of the enterprise would not be
considered to be a permanent establishment under
Article 5. Also, it is only so much of the profits of
the enterprise that may be taxed in the other State
as is attributable to that permanent establishment."
As held by the Hon'ble Supreme Court in the
above quoted paragraph, the condition precedent for
applicability of Article 5 of the double taxation
treaty and ascertainment of permanent establishment
is that it should be an establishment through which
business of an enterprise is wholly or party carried
on. Further, the profits of the foreign enterprise
are taxable only where the said enterprise carries on
its core business through a permanent establishment.
Further, it was held that maintenance of a fixed
place of business which is of a preparatory or
auxiliary character in the trade or business of the
enterprise would not be considered to be a permanent
establishment under Article 5 of the said treaty.
The facts of the said case were also more or less
identical to the case on hand and ultimately the
Hon'ble Supreme Court held that the Mumbai office of
the said assessee had only two employees and neither
of whom was qualified to perform in core activity of
the assessee and on facts, the Hon'ble Supreme Court
found that the project office of the said assessee
would fall within Article 5(4(e) of the agreement
inasmuch as the office is solely and auxiliary
office, meant to act as a liaison office between the
assessee and ONGC. In the case on hand, the factual
position has been analyzed by the learned Tribunal
and has recorded a finding that the office in West
Bengal was only auxiliary in character. In other
words, the activities carried out from the said
office in West Bengal was auxiliary in character.
Thus, the view taken by the learned Tribunal finds
support from the decision of the Hon'ble Supreme
Court in Samsung Heavy Industries Limited (supra).
For the above reasons, the appeal filed by
the revenue is dismissed and the substantial question
of law is answered against the revenue."
In the light of the above decision, the substantial
question of law framed for consideration is answered against
the revenue and the appeal (ITA/121/2019) stands dismissed.
(T.S. SIVAGNANAM, J.)
(HIRANMAY BHATTACHARYYA, J.)
As./K.Banerjee
