DDIT vs. Stock Engineer Contractor (ITAT Bombay)

No Permanent Establishment if only personnel supplied.

(1) Where a Malaysian company supplied technical personnel to the assessee (a Dutch company) on terms that the personnel would remain under the control of the assessee and that the Malaysian company would have no role to play in the execution of the Project and the question arose whether the recipient had a “supervisory activities” PE under Article 5 (4) (a) and the sums received was assessable as business profits (there being no provision for FTS in the India-Malaysia DTAA), HELD that as the Malaysian company’s role ended with the supply of personnel, it could not be considered to be carrying on supervisory activities in India and there was no PE. Consequently, the business profits were not chargeable, s. 195 did not apply and disallowance u/s 40(a)(i) in the hands of the payer was not permissible;

(2) Where the employees of the assessee’s foreign head office worked partly for the Indian Project and the question arose whether such part of the expenses as were allocable to the Indian project was hit by s. 44C of the Act, HELD s. 44C did not apply to all expenses incurred by the HO but was confined to “executive and general administration” expenses. Salary paid to technical personnel did not constitute either “general administrative” expenses nor “executive” expenses. The latter term applies only to managerial personnel;

(3) Where the assessee paid a UK company for deployment of their personnel for the supervision of the Indian project and recipient fell within the ambit of Articles 5 (2)(j) (supervisory activities exceeding 6 months in connection with a building site etc) and 5 (2) (k) (furnishing of services through personnel for more than 90 days) and the question arose as to which of the two would prevail to determine whether there was a PE, HELD that the provision that was more beneficial to the assessee (Art. 5(2)(j)) would apply.