‘Ready to use’ rig isn’t an Installation PE as per India-USA DTAA; HC denies interpreting term ‘used’ as per I-T Act

When 'rig' was lying 'ready for use', it could not be considered as 'used' for purpose of Article 5  of India-USA DTAA. The Tribunal had rightly concluded that the word 'used' as specified in said DTAA clarifies usage of an installation or structure for exploration of natural resources and if it was so used for a period of 120 days in 12 months, only then it can be considered as PE in India.

Facts:

a)  The assessee operated the rigs for its clients in India. Those rigs remained unused during the period specified by assessee due to maintenance and repair.

b)  The Assessing Officer (‘AO’) was of the view that India-USA DTAA (‘Agreement’), specified the word "used" without furnishing meaning to the said word and, accordingly, its meaning thereof to be culled out from the Income-tax Act, 1961 (‘I-T Act’), which includes term 'ready for use'.

c)  He further held that as the rig was lying ready for use and, as such, the rig having been used for more than 120 days during the relevant assessment year, the assessee had a permanent establishment (‘PE’) in India.

d)  The CIT(A) accepted the said decision and the Tribunal had reversed the findings of AO and the CIT(A).

The High Court held as under:

1)  The term 'PE' includes an installation or structure used for exploration or exploitation of natural resources, but only if so used for a period of more than 120 days in any twelve calendar month period;

2)  Thus, the Tribunal was of the view that the word ‘used’ had been explained in the Agreement and, thus, there was no scope to refer to the I-T Act.

3)  The Tribunal had rightly concluded that the word 'used' as specified in said DTAA clarifies usage of an installation or structure for exploration of natural resources and if it was so used for a period of 120 days in 12 months, only then it can be considered as PE in India;

4)  There was no infirmity in the order of Tribunal and he had rightly reversed the findings of the AO as well as the CIT(A). – DIT(International Taxation) v. R & B Falcon Offshore Ltd. [2014] 44 taxmann.com 400 (Uttarakhand)