Article 5(3)(e) excludes certain categories of "permanent establishment".

Heard learned counsel for the parties.

2. This appeal is filed by the Revenue against the common order passed by the Income Tax Appellate Tribunal in Income Tax Appeal No.4028/2002 and Income Tax Appeal No.4434/2002 for the assessment year 1998-99 challenging the order passed by the Commissioner of Tax (Appeals). Income Tax Appeal No.4028/2002 was filed by the Appellant- Revenue, and Income Tax Appeal No.4434/2002 was filed by the Assessee before the Income Tax Appellate Tribunal. By a common order dated 6 May 2006, the appeal filed by the Revenue was dismissed by the Tribunal, whereas the appeal filed by the Assessee was allowed.

3. Such a joint appeal against the disposal of two appeals ought not to have been filed by the Appellant- Revenue. The learned counsel for the Respondent- Assessee submitted that such a combined appeal ought not to have been filed but contends that assuming it to be permissible, there is no merit in either of the appeals. Therefore, we have proceeded to examine the appeal.

4. The Appellant- Revenue has pressed the following questions of law as substantial questions of law:

(a) Whether on the facts and circumstances of the case and in law, the ITAT is correct in holding that the Assessee's case does not constitute the "PE" as per Article 5(2)(c) of Indo-Mauritius DTAA without appreciating the clear facts detected at the time of survey u/s. 133A (of Income Tax Act, 1961), wherein the Assessee has carried out all the business activities from the Liaison office?

(b) Whether on the facts and circumstances of the case and in law, the ITAT is correct in holding that the Assessee's case cannot be covered simultaneously by the Articles 5(2)(i) and 5(2)(c) (of Income Tax Act, 1961) of Indo-Mauritius DTAA without appreciating that the PE can be examined under "an office PE" or "project PE"?

(c) Whether on the facts and circumstances of the case and in law, the ITAT is correct in holding that the activities detected at the Liaison Office constitute auxiliary and preparatory services and not the business activity without appreciating that the entire range of activities from the beginning to end are conducted at the Liaison office?

5. The Assessee- M/s. J. Ray Mc Dermott Eastern Hemisphere Ltd. has an office in India at Andheri, Mumbai. According to the Respondent- Assessee, this office is a liaison office for the supply of information and is only preparatory or auxiliary for the main enterprise, i.e. J. Ray Mc Dermott Eastern Hemisphere Ltd. According to the Revenue, what the Assessee has its office at this premises is as per Article 5 of the Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with Mauritius (Indo Mauritius Tax Treaty) and, therefore, the Respondent- Assessee has a permanent establishment as defined in Article 5(2)(c) of the Treaty. The Tribunal has upheld the contention of the Assessee.

6. Article 5 of the Treaty reads thus:

“ARTICLE 5 - Permanent establishment - 1. For the purposes of this Convention, the term “permanent establishment” means a fixed place of business through which the business of the enterprise is wholly or partly carried on.

2. The term “permanent establishment” shall include—

(a) a place of management;

(b) a branch;

(c) an office;

(d) a factory;

(e) a workshop;

(f) a warehouse, in relation to a person providing storage facilities for others;

(g) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources;

(h) a firm, plantation or other place where agricultural, forestry, plantation or related activities are carried on;

(i) a building site or construction or assembly project or supervisory activities in connection therewith, where such site, project or supervisory activity continues for a period of more than nine months.

3. Notwithstanding the preceding provisions of this article, the term “permanent establishment” shall be deemed not to include:

(a) the use of facilities solely for the purpose of storage or display of merchandise belonging to the enterprise;

(b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display;

(c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

(d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or for collecting information for the enterprise;

(e) the maintenance of a fixed place of business solely-

(I) for the purpose of advertising,

(ii) for the supply of information,

(iii) for scientific research, or

(iv) for similar activities, which have a preparatory or auxiliary character for the enterprise.

7. The learned counsel for the Appellant- Revenue sought to contend that there was a survey carried out under section 133A (of Income Tax Act, 1961) on 10 August 2000, wherein it was found that the Assessee kept the office of the Company at Dubai for its business. It was contended that the Assessee did not have any functional office in Mauritius, and the office at Andheri, Mumbai, was used for the project implemented by the Assessee company. The learned counsel for the Appellant contended that since it was an admitted position that there was an office of the Assessee at Andheri, the same would fall within the definition of permanent establishment as per Article 5 of the Treaty. Based on the documents recovered during the survey, the learned counsel for the Appellant sought to contend that the facts on record clearly establish that the Assessee was a permanent establishment and the Tribunal erred in holding otherwise. The learned counsel for the Respondent- Assessee supported the impugned order and the findings rendered therein, contending that there is no error in the findings recorded.

8. The argument advanced by the learned counsel for the Appellant based on Article 5(2)(c) of the Treaty overlooks Clause (3) of Article 5, wherein it is stated that notwithstanding Clause (2), the term "permanent establishment" will not include certain categories. Article 5(3)(e) excludes certain categories. We have gone through the order of the Tribunal. The Tribunal has elaborately discussed the evidence produced through documents impounded during the survey. The Tribunal noted the documents exchanged by the persons co-ordinating in the activities carried out at the site and the list of messages, including fax and radio messages. The Tribunal referred to the employees at this office and examined the roles performed by each of the employees. The Tribunal found that the role of employee Mr.Tarkar was only logistic and coordination, whereas Mr.Rodrigues looked after arranging meetings. Two other employees were only looking after communications. The Tribunal, having considered this material, recorded a finding that none of the documents showed any business done from the office. The documents such as the departmental paper-book and daily progress report, which were examined, showed that the work provided back- end operations. It was not established by the Appellant- Revenue that any substantial business has been done from the office. After considering these documents, the Tribunal found that the concerned place of business was only for the supply of information having preparatory or auxiliary character. Accordingly, the Tribunal concluded that the same would fall under Article (5)(3)(e)(ii). This finding of fact, recorded by the Tribunal after due consideration of the material on record, cannot be considered as perverse. The view taken by the Tribunal is a possible view, and that being the position, the question of law (a) sought to be presented as a substantial question of law is a factual question, and the Commissioner (Appeals) and the Tribunal having recorded concurrent findings on the factual issue, we hold that it does not arise for consideration.

9. As regards the question of law (c), it is a facet of the question of law (a) and, therefore, does not arise for consideration.

10. Regarding the question of law (b), the same was an alternate submission by the Assessee before the Tribunal. According to us, in the light of the fact that questions of law (a) and (c) have been answered against the Appellant-Revenue, the decision on the question of law (b) is academic and, therefore, need not be considered.

11. The appeal is dismissed.

(N.R. BORKAR, J.) (NITIN JAMDAR, J.)