COMMISSIONER OF INCOME TAX, MEERUT AND ANR. versus M/S. HYUNDAI HEAVY INDUSTRIES CO. LTD

Citation: [2007] 7 S.C.R. 288 · Decided: 18-05-2007 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Case Partly allowed

Cited by 2 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

A 
COMMISSIONER OF INCOME TAX, MEER.UT AND ANR. · 
. 
,· 
' 
MIS. HYUNDAI HEAVY INDUSTRIES CO. LID ... 
MAY 18,2007 
B 
[SR KAPADIA AND B. SUDERSHAN REDDY, JJ.l · 
Income Tax Act, 1961-Sections 9, 44BB, 143 (2) & 144-Convetition 
for Avoidance of Double Taxation-Article 7-Contract entered into by Indian 
c company with assesseeforeign company for designing, fabrication, 
·installation, and commis.sion' of an oil platform inlndia-Assessee declaring 
nil income-Notice issued by Re\ienu~Assessee contending that the contract 
is divisible into Indian operatio~ and foreign opera#om; · that income from 
Indian operations is not liable to tax as it did not have Permanent 
Establishment in India; and that the inco,,,e froni foreign operations. is not 
D liable to tax·.as. it is earned outside JndiO-:.Asses#ng Officer rejecting the 
content.ions and·made butjudgment assusment ·holding that the. contract iS 
not divisible and treated entire receipts periaining to Indian. operations and 
2% of receipt.pertaining to foreign operati(ins. as income-Comm~sioner 
Appeals treatM· I% of receipts in r~pect of foreign. operations and· 10% of .. 
E .receipts relating to Indian· operations as income-c-Tribuna/ allowing the 
appeal of the assessee. and· held t~t the · contra~t is divisible. ~1Ul that the 
recei/Jts pertaining to foreign operations are n~t taxable; and that 10"/6 of . · 
receipts from Jndian-Operati~ns is taxab./e as inco~e-:-lfigh Court<f.ismissing 
the appeal of the Revenue· summarily-<.;orf\ectness of-Held on facts, 
Permane"1 Establishment cam(! into exisi~nce iii India ·after .designing and 
F. fabrication outside India and handing over thef4bricat~dplat/'orm to Iiidian 
company oulSide· India-Hence, profits .arising from ·actiVities :ouiside· India 
. are not /i'able to tax and)O% of the receipts !from Indian operation$ are 
liable to toX under the Acf. 
Respoildent-assessee, 'a non"'.resid~nt Jorelgn company entered lnto a 
G contracfWith an Iridian eompany ror designing,.rabricatio~s, illstall8tion and 
commisSion or an oii platform in India. The assessee filed lpcoine Tax ltenirnl .. 
for relevant iissesslilent years d~claring nil income: In response to notices 
issued by Revenue under. Section 143(2) ortbe Income. Tax Act, 1961, .the 
assessee replied contending that it did not have a Permanent EstabliShment 
H 
288 
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\,_..: 
COMMNR. OF INCOME TAX, MEER UT''· HYUNDAI HEAVY INDUSTRIES CO. LID. 
289 
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(PE) in India and hence not assessable to tax in India under the Act and under A 
Article 7 of the Convention for Avoidance of Double Taxation (CADT); that 
the duration of the Indian operations of installation and commissioning was 
less than nine months; that the contract is divisible and hence the income ar 
aild fabrication activities carried outside India is not assessable to tax in India. 
Assessing Officer rejected the contentions and the accounts produced B 
by the assessee and made best judgment assessments for the relevant 
...._ 
assessment years on receipt basis. The Assessing Officer held that the Project 
y 
extended beyond nine months; that the assessee had a PE in India; that the 
contract was not divisible; that since designing and fabrications of the platform 
had an application in India, a part of the income arising from the foreign 
operations was also taxable in India. The Assessing Officer treated the entire c 
receipts pertaining to Indian operations and 2% of the receipts in respect of 
the foreign operations as income liable to tax. 
Commissioner of Income Tax (Appeals) dismissed the appeals preferred 
by the assessee and directed the Assessing Officer to treat 1 % of the receipts D 
in re5pect of the foreign operations and 10% of the receipts relating.to Indian 
:->~ 
operations as income liable to tax under the Act. 
Income Tax Appellate Tribunal allowed the appeals preferred by the 
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assessee holding that the contract was divisible; that the profits arising out 
of activities done outside India are not taxable in India; and treated 10% of E 
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the receipts as income from Indian operations liable to income tax. The appeals 
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filed by the Revenue before High Court under Section 260A of the Act was 
summarily dismissed. 
In appeals to this Court, the Revenue contended that the contract entered F 
into by the respondent-assessee with the Indian company was a composite 
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contract; and that the activities done outside India are interliked with the 
activities Indian activities and 

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