{"id":5800,"date":"2012-10-12T06:43:44","date_gmt":"2012-10-12T06:43:44","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?p=5800"},"modified":"2012-10-12T06:43:44","modified_gmt":"2012-10-12T06:43:44","slug":"national-petroleum-construction-company-vs-adit-itat-delhi-even-a-turnkey-contract-has-to-be-split-into-various-components","status":"publish","type":"post","link":"https:\/\/itatonline.org\/archives\/national-petroleum-construction-company-vs-adit-itat-delhi-even-a-turnkey-contract-has-to-be-split-into-various-components\/","title":{"rendered":"National Petroleum Construction Company vs. ADIT (ITAT Delhi)"},"content":{"rendered":"\n\n
Click here to download the judgement (National_Petroleum_Turnkey_Contract_Taxability.pdf) <\/strong> <\/a><\/p><\/td>\n<\/tr>\n<\/table>\n


\nEven a \u201cTurnkey\u201d contract has to be split into various components
\n<\/strong><\/p>\n

The assessee entered into a contract with ONGC for fabrication and installation of on-shore and off-shore oil facilities and pipelines. The assessee claimed that though the contract was one, it had to be sub-dividend into two parts, one for designing, fabrication and supply of material and the other for installation and commissioning of the project. It was claimed that the work relating to the former was carried out exclusively in Abu Dhabi and hence no income relating to receipts for that part of the contract was liable to tax in India as the there was no PE in India. The AO & DRP rejected the claim on the basis that (a) the contract was a \u201cturnkey\u201d one where the entire risk of completion & commissioning was on the assessee & it was not divisible into different components, (b) the assessee had a project office in India which was a PE, (c) the assessee had a Dependent Agent PE, (d) there was a \u201cconstruction and installation PE\u201d under Article 5(2)(h) & (e) ownership of the equipment transferred to ONGC only after issue of the certificate of acceptance of the entire work. It was also held that s. 44BB was not applicable and the profit was estimated at 25% of gross receipts. On appeal by the assessee to the Tribunal HELD: <\/p>\n

(i) The assessee\u2019s project office in India constituted a PE. It also had a \u201cDependent Agent PE<\/em>\u201d and also a \u201cconstruction and installation PE<\/em>\u201d under Article 5(2)(h);<\/p>\n

(ii) However, though the contract was on a \u201cturnkey<\/strong>\u201d basis, it had to be regarded as an \u201cumbrella contract<\/strong>\u201d and as being a divisible contract<\/strong> because the consideration for various activities has been stated separately<\/strong>. Also, ONGC had the discretion to take only the platform erected by the assessee in Abu Dhabi without having installation thereof. The segregation<\/strong> of the contract revenues into offshore<\/strong> and onshore<\/strong> activities was made at the stage of awarding the contract. The total consideration was earmarked<\/strong> towards different activities and separate payment had to be made on the basis of work of design, engineering, procurement and fabrication. These operations had been carried out and completed outside India. The PE was in respect of the installation and commissioning work done in India and the activities carried outside India were not attributable<\/strong> to the said PE (Hyundai Heavy Industries<\/strong> 291 ITR 482 (SC), Ishikawajma-Harima Heavy Industries<\/strong> 288 ITR 408 (SC) & Roxon OY<\/strong> 103 TTJ 891 (Mum) followed); <\/p>\n

(iii) The work of installation of the platform done inside India does not<\/strong> fall u\/s 44BB<\/strong> because the activity cannot be regarded as a \u201cfacility in connection with the prospecting for, of extraction or production of, mineral oils<\/em>\u201d. <\/p>\n

\nSee also Nokia Networks OY<\/a><\/strong> (Del) & contrast with Roxar Maximum<\/a><\/strong> (AAR) & Alstom Transport<\/strong><\/a> (AAR) & Dongfang Electric Corporation<\/a><\/strong> (Kol)\n<\/div>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

However, though the contract was on a \u201cturnkey<\/strong>\u201d basis, it had to be regarded as an \u201cumbrella contract<\/strong>\u201d and as being a divisible contract<\/strong> because the consideration for various activities has been stated separately<\/strong>. Also, ONGC had the discretion to take only the platform erected by the assessee in Abu Dhabi without having installation thereof. The segregation<\/strong> of the contract revenues into offshore<\/strong> and onshore<\/strong> activities was made at the stage of awarding the contract. The total consideration was earmarked<\/strong> towards different activities and separate payment had to be made on the basis of work of design, engineering, procurement and fabrication. These operations had been carried out and completed outside India. The PE was in respect of the installation and commissioning work done in India and the activities carried outside India were not attributable<\/strong> to the said PE (Hyundai Heavy Industries<\/strong> 291 ITR 482 (SC), Ishikawajma-Harima Heavy Industries<\/strong> 288 ITR 408 (SC) & Roxon OY<\/strong> 103 TTJ 891 (Mum) followed)<\/p>\n

Read more ›<\/a><\/div>\n

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